The unprecedented era of the bull market has come to an end, and thebear market begins now! Coronavirus, the cause of this chaos has been declaredas a pandemic, and officials around the globe are busy implementing necessarymeasures 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.Sand 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.
The situation is no different for the U.S indices trading 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 lookingat the pace at which the S&P500 index dropped from its all-time high to20%. As I mentioned earlier, it is already down by over 19% from its Februarypeak, and if the index ends up dropping over 20% before April 1, it will be thefastest bear-market plunge in history.
To put some numbers in perspective, during the financial crisis, it tookmarkets 274 days to enter into a bear market, and the fastest drop (into abear) from an all-time high is 55-days. This happened back in August 1987. Thecurrent situation, by my estimate, stipulates that we are likely to witness theS&P500 officially entering into bear territory this week, if not today.
The tourism and travel industry has been hit the worst so far. Boeingsits 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 lastmonth. The pandemic has further dented the demand for new airplanes. Liquiditycrunch is the main issue here, and banks are expected to remain busy inproviding short-term financing to act as a safety net. The central banks arecommitted to providing their support to ease any liquidity qualms. If thesituation gets out of hand, it’s likely the financial market will experience themot significant period of chaos in history.