Interesting Twitter thread by economist Henrik Zeberg (@HenrikZeberg). In the thread Zeberg compares charts of the S&P 500 index during the two most recent bear markets (2000-02 and 2007-09) and projects how similar moves could play out now.
Am posting his thread below in its entirety:
Some investors, analysts seem to think, that #Equity Bear Market is over and we will rally to ATH. Imo this is naive taking the severe blow to economy into consideration – and the size of the equity bubble which has burst. Some comparisons to earlier Bear Markets provide heads-up
First, Bear Market 2000-02. Rather mild recession due to burst of IT-bubble (somewhat confined) despite extreme Market Cap. to GDP of ~141%. Monetary stimulus had effect as Fed Funds rate >6% at entry of crisis. Still Bear Market for ~638 days and decline of ~50% before bottom.
Notice how wave 2 retraced ~90% of the decline from the top. Yet – despite this rally (which I’m sure was bringing Bulls out) stock market dropped ~49% from that level. Do not get fooled by current sentiment. We are in a major Recession and Bear Market for years to come.
Second, Great Recession 2007-09. Strong recession. Close to Financial World collapse driven by Housing bubble bust. Market Cap. to GDP only at 109%. Monetary stimulus opp. were stretched – QE was introduced. Yet Bear Market for ~517 days with a ~57% decline in stock market value.
Third, The Everything Bubble (trigger: Corona). Severe recession? Monetary stimulus tool useless to real economy? Complete economic collapse widespread! Market Cap. to GDP ~151%. You think the Bear Market will only last for 72 days – with equity decline of 35%? Really?!
This current crisis will drive the largest Bear Market we will ever experience. Major fall-outs: bankruptcies, Pensions fund & sovereign state crisis, political and societal turmoil, etc. Decline in stock market 60-75% over 2-3 yrs. This is THE major crisis in Kondratiev’s Winter
Henrik Zeberg 30-Apr-2020