ASX investors are currently resisting a very unpleasant market collapse and a subsequent bear market. Since mid-February, the S & P / ASX 200 Index (ASX: XJO) has lost around 27% of its value. Since a bear market is declared when an index drops more than 20% from a previous high, we are now well and truly deep in the bear-filled woods, so to speak.
As we sit on the edge of an ASX hovering around 5,000 points, many investors are probably wondering “what’s next?”
And that’s a good question – we are in unknown territory. This stock market crash of 2020 has not yet surpassed the stock market crash of GFC or 1987 in terms of severity. But it surpassed it in terms of speed – which means that this bear market looks much worse after just 7 weeks than the GFC or the crash of 87.
Let’s see what happened during the GFC in 2007-2009.
A reminder from GFC
In November 2007, the ASX 200 peaked at around 6,700 points (that’s true, well above the current level). Two months later, the index was “only” down to around 5,950 points, down 11%.
It took about 18 months for the markets to finally bottom out, which they did in March 2009 at 3,145 points, which ended up being a peak drop to just over 53%.
The GFC bear market therefore fell by 11% in the first 2 months, but took 18 months to find the bottom. We are in 2 months in this bear market and have seen a drop of 27%.
I wonder if you take what I put here …
Now, I would just like to point out that the GFC stock market crash was a “slow burning” event. It took a long time for the damage inflicted on the US (and global) economy by the subprime mortgage crisis to become evident to all.
On the other hand, we all painfully became aware of the damage that the coronavirus was going to cause to the economy relatively quickly in March (although we don’t know the whole story yet, of course). I suspect that is why we have seen such a strong downward trajectory in the stock market. But where to go from here? Who knows!
Maybe we have already found the bottom. If it is, it would be the shortest and sharpest flash crash we have ever seen. It can be a V-shaped recovery, a U-shaped recovery or a non-L-shaped recovery.
Or maybe we haven’t found the bottom yet…
Anyway, be sure to check out this awesome report below before you go!
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Returns on 07/04/2020
Motley Fool’s contributor Sebastian Bowen has no position in any of the titles mentioned. Motley Fool Australia has no position on any of the securities mentioned. We fools may not all share the same opinion, but we all believe that considering a diverse range of ideas makes us better investors. The Motley Fool has a disclosure policy. This article only contains general investment advice (under AFSL 400691). Authorized by Scott Phillips.