March 13, 2020

Special Report: The Bear Market is Here

Special Report: The Bear Market is Here

The unprecedented era of the bull market has come to an end, and the bear market begins now! Coronavirus, the cause of this chaos has been declared as a pandemic, and officials around the globe are busy implementing necessary measures to ward it off, including travel bans, discouraging social gathering, closing public schools, and encouraging companies to work home. As a result, economists have taken out their compasses and declared lower growth for the U.S and the global economy’s second quarter.

The Hard Core Numbers

 Looking at the market’s hard equity numbers, the FTSE 100 futures are trading 250 points lower, and it’s crystal clear the bear market has officially arrived, all major European indices have dropped over 20% from their all-time high. Year-to date, the DAX is down by 21%, the Stoxx 600 almost -20%, the CAC 40 -22.88%, the FTSE MIB -23.73% and the UK’s FTSE100 -22.09%.  The situation is no different for the U.S indices as well, the S&P is down by -15.15% YTD,  and the Dow Jones -17.47% YTD. The Dow Jones is officially in bear territory, while the S&P500 index is sitting at -19.04%.  Given the fact that both the  Dow Jones and S&P500’s futures are down by nearly 4% today, it is pretty much guaranteed that the bear market will welcome the U.S. equity market.

Fastest Plunge of 20% on Record

The extent of the current panic in the market can be measured by looking at the pace at which the S&P500 index dropped from its all-time high to 20%. As I mentioned earlier, it is already down by over 19% from its February peak, and if the index ends up dropping over 20% before April 1, it will be the fastest bear-market plunge in history.

To put some numbers in perspective, during the financial crisis, it took markets 274 days to enter into a bear market, and the fastest drop (into a bear) from an all-time high is 55-days. This happened back in August 1987. The current situation, by my estimate, stipulates that we are likely to witness the S&P500 officially entering into bear territory this week, if not today.

Liquidity Issues

The tourism and travel industry has been hit the worst so far. Boeing sits on top of this ladder as the company planned to draw down all of its $13.825 billion loan after tapping into the $7.5 billion loan facility last month. The pandemic has further dented the demand for new airplanes. Liquidity crunch is the main issue here, and banks are expected to remain busy in providing short-term financing to act as a safety net. The central banks are committed to providing their support to ease any liquidity qualms. If the situation gets out of hand, it’s likely the financial market will experience the mot significant period of chaos in history.