I’ve never seen a drop then a rare big rise in the stock markets

Furthermore, the major stock indices have become extremely outdated in all major periods, meaning that a correction has matured on a technical basis, but very few were prepared for what came this spring.

Burn, burn to the back

News of the coronavirus epidemic had already rained in January-February, but investors only began to assess the effects of the serious economic consequences expected from the end of February. The first round of the fall lasted from mid-February to the end of the month, and although there was less tranquility in early March with a sharp rise in the exchange rate, the difficulty was yet to come, the really serious days began on 9 March.

That day, the Dow Jones fell 7.8 percent, or 2014 points, which in terms of scores was an unprecedented drop, but in hindsight we already know that (spoiler!) That drop in late March was only enough for the third. step of the podium. Investors have specifically walked away from the stock, with consecutive record lows in the global sell-off: The Dow Jones set another record on March 16, dropping 2,353 points that day, losing nearly 10 percent of its value, but not yet. had finished. In the fall, on March 16, with a devastating drop of 2,997 points, or 12.9 percent, the Dow entered the history books. Before March 16 of this year, it was just a Black Monday when the Dow fell a higher percentage than this spring, the index fell 22.6 percent on October 19, 1987, and this year it’s even tougher than on October 28, 1929. It was then that the Dow Jones fell 12.8 percent.

In terms of scores, 8 of the top 10 daily drops, if it is as a percentage, and 2 of the top 10 occurred this spring in the Dow Jones index.

Blitzkrieg

The stock market crash that took place this spring was outstanding not only in terms of the dramatic days that were characterized, but also in terms of how quickly the crash occurred.

According to the definition of the capital market, in the event of a fall of more than 20 percent, we can speak of a bear market,

Such a drop this spring required 16 business days for the Dow Jones Index and 17 business days for the S&P 500.

Although the beginning and end of the stock market crash varied from market to market, adjusting to major US stock indices, between mid-February and mid-March, the coronavirus wreaked havoc on stock markets.

The market frenzy is well illustrated by the fact that the value of the VIX index, also called the fear index, jumped to an all-time high of more than 85 points in the March panic, higher than during the 2008 crisis.

I mean, it’s a steam engine, but what drives it?

In mid-March, the main stock market indices reached panic lows, and from there, like the fall, there was a rebound of unprecedented speed and intensity.

What drove the stock markets higher?

• The main impact was mainly fiscal and monetary stimulus, following the post-2008 recipe, governments and central banks around the world did everything possible to help national economies recover from the shock caused by the coronavirus epidemic and restrictive measures as soon as possible. There is astonishing liquidity in the system, which is looking for its place and has been found on the stock exchanges, among others.
• Among other things, central banks have addressed the negative effects of the epidemic with low interest rates, which has a positive effect on corporate operations and the price of shares through various channels, but generally, in an environment For low interest rates, investors must step out of their comfort zone to They want to achieve a substantial return, among other things, find that return in the equity markets.
• Stock exchanges in the first phase of the rally were mainly attracted by the shares of companies that benefited from the pandemic, large technology companies, streaming service providers, e-commerce companies, companies that provide online services, etc. its income and profits skyrocketed during the crisis, and its share prices rose more and more.
• In the next phase of the rally, roughly from early November, as news on vaccine development improved, value stocks and cyclical company stocks outperformed, investors began pricing the world economy returned to normal for the foreseeable future.
• Meanwhile, risk factors such as the US presidential elections have also come out of the picture, the result is already known, one less risk.
• Favorable vaccine news has also helped stock markets rally in recent months, with more and more companies around the world launching effective, low-risk formulations, and vaccinations have already started in more and more countries, giving a boost to the stock markets.
• And it was also a factor that helped the stock market rally that analyst earnings and earnings expectations, which had meanwhile become very pessimistic, were largely outpaced by European, American and Asian companies.

More records

The shift in U.S. equity markets began on March 24, that day, the Dow Jones was up 11.4 percent, or 2,113 points, the percentage for the fourth-largest rise in a day in the index. .

At the time, few people foresaw it, but an unprecedented rally began in March,

• the S&P 500, for example, rose nearly 38 percent in the 50 days after the low, a new record,
• Also, the rally did not end in the summer, stock markets crashed in November, November 2020 was one of the best months in the history of the Dow Jones, the last time going back to January 1987 for a performance matched in time,
• And for the S&P 500, this year was the best November ever.

The S&P 500 rose to a new high in August after the rally that began in March and has been rising ever since.

Since their low in March, the major stock indices have risen 40 to 60 percent.

Currently, the major stock indices in the US, Europe and Asia are at record levels or near their all-time highs.

Cover Image: Roscosmos TASS Press Office via Getty Images