Stock markets have entered bear market territory meaning that they have lost 20 per cent of their value and in short order. Is the stock market’s reaction overstated? From an economic perspective, coronavirus is big. It started with an interruption in China’s output and if that wasn’t mainstream enough, now global travel is being interrupted, events are being cancelled and large social events are being prohibited. Meetings are being moved to virtual ones and extended breaks are being imposed on schools. This is disrupting our lives.
When the sub-prime mortgage fiasco resulted in the global financial crisis, the U.S. stock market collapsed as the Dow Jones Industrial Average index fell from a high of over 14,000 to a low of around 7,000 over a period of 18 months. There was a fear that the globe was entering a period of a global depression much like what had happened in the 1930s. That fear proved unwarranted as the global economy rebounded and the stock market resumed its upward trend. There are many reasons that the global economy was more resilient this century versus in the 1930s and the banking rules have been largely pointed to. I would posit that the degree of globalization, trade, availability of food, preservatives and energy, along with the portion of the population that is not living in abject poverty are all in the mix as to why the 2008 recession did not become a depression.
