Chart of the Month: Velocity of Market Downturns

Source: Morningstar (data through March 31, 2020)

Market Observations

Bear markets occur when stock prices fall 20% or more from a recent market peak. The S&P 500’s recent sell-off has been the fastest in history, entering a bear market in only 16 days. The only two periods in history where stocks fell this fast were during Black Monday and the Great Depression. Both periods ended with very different outcomes for the U.S. economy. While a U.S. recession appears to be the consensus view for 2020, it remains unclear what the recovery will look like when the threat of the coronavirus recedes, and economic activity begins to rev up again. Wall Street economists are trying to assess whether the recession will be V-, W-. U- or L-shaped, which describe whether the downturn is short-lived, a double-dip, prolonged, or long lasting. Clearly, the market hopes that the recession will be V-shaped, and the sharp downturn will be followed by a swift recovery. Only time will tell.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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