ASX investors are currently withstanding a very nasty market crash and subsequent bear market. Since mid-February, the S&P/ASX 200 Index (ASX: XJO) has lost around 27% of its value. Since a bear market is declared when an index drops more than 20% from a previous high, we are now well and truly deep in the bear-filled woods, as it were.
So as we sit at the edge of an ASX hovering around 5,000 points, many investors are no doubt wondering 'what's next?'
And it's a good question – we are in uncharted territory. This 2020 market crash has not yet surpassed the GFC or 1987 stock market crash in terms of severity. But it has surpassed it in terms of sheer speed – meaning this bear market looks a whole lot worse just 7 weeks in than either the GFC or '87 crash did.
Let's take a look at what happened during the GFC in 2007–2009.
A GFC refresher
Back in November 2007, the ASX 200 peaked at around 6,700 points (that's right, far higher than today's level). Two months later, the index had 'only' fallen to around 5,950 points – an 11% fall.
It took around 18 months for the markets to finally find their bottom, which they did in March 2009 at 3,145 points in what ended up being a peak-to-trough drop of just over 53%.
So the GFC bear market saw an 11% fall in the first 2 months, but took 18 months to find the bottom. We're 2 months into this bear market and have seen a 27% drop.
I'm wondering if you're picking up what I'm putting down here…
Now I'll just point out that the GFC market crash was a 'slow burn' event. It took quite a long time for the damage that was being inflicted on the US (and global) economy by the sub-prime mortgage crisis to become obvious to everyone.
In contrast, we all became painfully aware of the damage the coronavirus was going to wreak on the economy relatively quickly in March (although we still don't know the full story, of course). I suspect that's why we've seen such a sharp downward trajectory in the stock market. But where to from here? Who knows!
Maybe we have already found the bottom. If so, it would be the shortest, sharpest flash crash we've ever seen. It might be a V-shaped recovery, U-shaped recovery or an L-shaped… non-recovery.
Or maybe we haven't found the bottom just yet…
