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The Bear is Back: A Global Pandemic

bear

The Bear is Back: A Global Pandemic

The U.S. stock market fell into a bear market on March 12, 2020, ending the bull market that began in 2009. The bull market had begun on March 9, 2009, and peaked on February 19, 2020. The S&P 500 rose 400% between 2009 and 2020, the Dow Jones Industrials rose 351% between 2009 and 2020 and the NASDAQ Composite rose 674% between 2009 and 2020. However, since February 19, 2020, we have seen dramatic declines in all three.

Figure 1. S&P 500, 2009 to 2020

The GFD US-100 Index provides coverage beginning in 1792. By our calculation, there have been twenty-four bull and bear markets since 1792 with four occurring in the 1800s, seventeen in the 1900s, and three in the 2000s. The worst bear market was in 1929-1932, led by an 89% decline in the Dow Jones Industrials. Two prior bear markets in this century both had declines of 50% in 2000-2002 and 2007-2009. By comparison, previous bear markets, such as those occurring in 1987 and 1990, only lasted a few months before a bounce-back.

What is interesting about this current bear is how quickly and how sharply it hit markets throughout the world in response to the spread of the Coronavirus. This was a quick, simultaneous financial pandemic in every nation of the world. In many countries, the 2020 bear market is simply a continuation of the bear market that began in 2018.

The extent of the bear market in 22 countries and for global indices is provided in Table 1 which uses data from the GFDatabase. The table shows the date of the market top, the value the index hit on that date, the change from the previous market low, the current value of the market, and how much each market has fallen since the top in 2018 or 2020. The only major market in the world which has not fallen into a bear market this year is the Chinese market, the country where the coronavirus originated. However, the Chinese market had already been in a state of decline since 2015.

Figure 2. Shanghai Stock Exchange “A” Shares Index, 2010 to 2020

So far, global markets have fallen by around 30-40%. The question is, how much more are the markets likely to fall?  Will this be a short-lived bear market as occurred in 1987 and 1990 or a more extended bear market as occurred in 2000-2002 and 2007-2009?

Figure 3. United States 10-year Bond Yield, 2010 to 2020

It should be noted that fixed-income markets have already hit their bottom in the United States. This occurred on March 9 when the 10-year bond fell below 0.5% as we had previously predicted in the blog “230 Years of Data Show Rates Will Soon Hit 0.50%.” Yields have slightly risen since then. Moreover, the Shanghai Index bottomed out on February 3, 2020, when the stock market reopened after the Chinese New Year and has not participated in the worldwide sell-off. Both of these indicate that this bear market will not continue for an extended period of time. We will update Table 1 on a regular basis so our readers can follow the changes in this COVID bear market.

Table 1.  COVID Bear Market Statistics for 22 Countries and 4 Regions

 

Country

Index

Market Top

Value

Change

Market  Low

Value

Change

Asia
Australia All-Ordinaries 2/20/2020 7255.2 133.16 3/23/2020 4564.1 -37.09
China Shanghai A Shares 6/12/2015 5410.86 165.15 12/27/2018 2600.05 -51.95
Hong Kong Hang Seng 1/26/2018 33154.12 80.98 3/23/2020 21696.13 -32.76
India BSE Sensex 1/14/2020 41952.63 82.79 3/23/2020 25981.24 -38.07
Japan TOPIX 1/23/2018 1911.31 59.77 3/16/2020 1236.34 -35.31
Singapore FTSE ST All-Share 1/24/2018 877.87 40.38 3/23/2020 540.6 -38.42
South Korea Korea SE Price Index 1/29/2018 2598.19 57.21 3/19/2020 1457.64 -43.90
Taiwan Taiwan Weighted 1/14/2020 12179.81 56.41 3/19/2020 8681.34 -28.72
Europe and Africa
Belgium All-Share 4/13/2015 13859.94 104.31 3/18/2020 7202.21 -48.04
France CAC All-Tradable 2/12/2020 4732.14 56.27 3/18/2020 2888.89 -38.95
Germany CDAX Composite 1/23/2018 625.19 50.07 3/18/2020 363.83 -41.80
Italy FTSE Italia All-Share 2/19/2020 27675.06 39.43 3/12/2020 16286.37 -41.15
Netherlands All-Share Index 2/12/2020 904.31 54.15 3/18/2020 574.88 -36.43
Norway OBX Price 9/25/2018 523.06 70.44 3/16/2020 329.67 -36.92
South Africa FTSE All-Share 1/25/2018 61684.8 246.26 3/19/2020 37963 -38.46
Spain Madrid General 4/13/2015 1203.82 99.78 3/16/2020 608.26 -49.47
Sweden OMX All-Share Price 2/19/2020 732.67 68.35 3/23/2020 478.95 -34.63
Switzerland SPI Price Index 2/19/2020 731.04 140.71 3/16/2020 548.52 -24.97
United Kingdom FTSE-100 5/22/2018 7534.4 99.27 3/23/2020 4993.89 -33.72
Americas
Brazil Bovespa 1/23/2020 119528 217.51 3/23/2020 63451.55 -46.91
Canada TSE-300 2/20/2020 17944.1 51.52 3/23/2020 11228.49 -37.43
Mexico Mexico IPC 7/25/2017 51713.38 206.16 3/23/2020 32936.6 -36.31
United States DJIA 2/12/2020 29551.42 351.37 3/23/2020 18576.04 -37.14
United States S&P 500 2/19/2020 3386.15 400.52 3/23/2020 2236.7 -33.95
United States NASDAQ 2/19/2020 9817.18 58.52 3/23/2020 6860.67 -30.12
Global
Emerging Markets MSCI Emerging Free 1/29/2018 1278.53 85.69 3/23/2020 758.204 -40.7
Europe MSCI Europe 1/25/2018 1926.57 47.52 3/23/2020 1152.698 -40.16
World MSCI World 2/12/2020 2434.95 35.63 3/23/2020 1602.105 -34.2
World MSCI EAFE 1/25/2018 2186.65 46.52 3/23/2020 1354.3 -38.07

 

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Dr. Bryan Taylor is President and Chief Economist for Global Financial Data. He received his Ph.D. from Claremont Graduate University in Economics writing about the economics of the arts. He has taught both economics and finance at numerous universities in southern California and in Switzerland. He began putting together the Global Financial Database in 1990, collecting and transcribing financial and economic data from historical archives around the world. Dr. Taylor has published numerous articles and blogs based upon the Global Financial Database, the US Stocks and the GFD Indices. Dr. Taylor’s research has uncovered previously unknown aspects of financial history. He has written two books on financial history.

spanish flu

The Spanish Flu and the Stock Market: The Pandemic of 1919

Everyone is concerned about the coronavirus and how it is impacting the global economy. Parts of China have been quarantined to prevent the spread of the virus and the world is wondering how the virus will disrupt supply chains between China and the rest of the world and how it will impact global travel. Will cities that are cut off from the rest of the world be able to contribute to the global economy?

The main precedent for the coronavirus is the SARS epidemic of 2002-2004, but you should also look at the more serious Spanish Flu pandemic of 1919.  It is estimated that the Spanish Flu infected 500 million people worldwide, or about 27% of the world’s population and killed between 30 million and 50 million people, or about 1.7% of the world’s population. Were a similar pandemic to hit the world today, this would translate into 100 million deaths. This made the Spanish flu one of the deadliest epidemics in history. The pandemic occurred in the last year of World War I and military censors in France, Germany, the United Kingdom, United States and other countries were told to control information on the flu fearing that it would affect their ability to win the war, but there was no censorship on the flu in neutral Spain where King Alfonso XIII took ill. This gave the world the false impression that the flu originated in Spain, hence the name.

The Spanish flu came in three waves as is illustrated in Figure 1. The first wave, which made people notice the flu, occurred in July 1918.  The second and most deadly wave occurred in October 1918 and resulted in millions of deaths. A final wave of the flu occurred in February 1919, and after that, the flu disappeared. Either the virus mutated to a less lethal form or doctors got better at treating or preventing it. Just as no one knows for sure exactly where the virus came from, no one knows why it disappeared.

Figure 1. Death Rates of the Spanish Flu, June 1918 to May 1919

It is interesting to contrast the response of the stock market to the Spanish flu in 1919 with the coronavirus in 2020. The Dow Jones Industrial Average fell over 2,000 points in four days out of fear that the coronavirus will continue to spread and impact the global economy. The fear is that cities will become quarantined, supply chains will be broken, world trade will be impacted and growth in the global economy will slow down.

However, the impact of the Spanish Flu on the stock market was minimal. If you look at the Dow Jones Industrial Average in 1918 and 1919, you can see that the stock market was relatively unaffected by any of the three waves of the Spanish flu. Of course, the Spanish flu occurred in 1918 while World War I was raging in Europe so the war had a larger impact on the stock market than the flu. There were few if any global supply chains that the Spanish Flu could disrupt because the war made supply chains nonexistent. The second and worst wave of flu occurred at the end of World War I when peace was finally achieved after four years of devastating destruction. It is interesting that there was little impact on the stock market of World War I ending on November 11, 1918. Perhaps euphoria about the conclusion of the war was offset by concerns about the Spanish flu.

It is comforting to see that when the final wave of the Spanish flu subsided in February 1919, the market began an increase of 50% which lasted until November of 1919.  Whether this increase occurred because of the end of World War I or the end of the flu or both is impossible to say, but it does provide encouragement that once the coronavirus begins to subside, the market will bounce back once again.

Figure 2. Dow Jones Industrial Average, January 1918 to December 1919

________________________________________________________________

Dr. Bryan Taylor is President and Chief Economist for Global Financial Data. He received his Ph.D. from Claremont Graduate University in Economics writing about the economics of the arts. He has taught both economics and finance at numerous universities in southern California and in Switzerland. He began putting together the Global Financial Database in 1990, collecting and transcribing financial and economic data from historical archives around the world. Dr. Taylor has published numerous articles and blogs based upon the Global Financial Database, the US Stocks and the GFD Indices. Dr. Taylor’s research has uncovered previously unknown aspects of financial history. He has written two books on financial history.