Stocktake: Investors stunned by speed of market U-turn

Global stocks endure worst week since financial crisis as coronavirus hits markets

Traders work through the closing minutes of trading on the New York Stock Exchange floor on Tuesday. Photograph:  Scott Heins/Getty Images

Traders work through the closing minutes of trading on the New York Stock Exchange floor on Tuesday. Photograph: Scott Heins/Getty Images

 

Corrections typically generate hyperbole aplenty, with headline writers petrifying their readers by stressing how stocks have just suffered one of their worst one-day drops in history.

It’s a cheap trick; as LPL Research strategist Ryan Detrick noted after the Dow Jones plummeted by more than 1,000 points, this was the third-worst point drop in history but it only ranked 254th in percentage terms. Still, the coronavirus-inspired selling is remarkable in many respects.

The S&P 500 plunged 10 per cent in just six sessions – the fastest correction from an all-time high in history. It was the worst week for stocks since the financial crisis. Monday and Tuesday’s declines represented the 31st worst two-day drop since 1950 – “pretty gnarly”, as Ritholtz Wealth Management’s Michael Batnick put it.

Rapid declines

What’s especially notable is these rapid declines typically occur in bear markets, not immediately after all-time highs. According to market strategist Steve Deppe, it was the worst four-day stretch to follow an all-time high going back to 1950.

This hasn’t been a run-of-the-mill correction; investors are entitled to be spooked, given the sheer speed of the market U-turn.

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