The Covid-19 woke up the stock bear. The Dow Jones recorded a fall of more than 5%, Wednesday, March 11, precipitating this crucial Wall Street index into territory of "bear market", that is to say a "bear market", also sometimes translated in French by "bear market".
This animal-technical terminology essentially designates a stock market panic that threatens to settle permanently. The "bear market" nonetheless remains one of the most feared stock market events because it is often perceived as an ominous bear, heralding a possible recession. Explanations.
For a "bear market", you must…
Technically, a "bear market" occurs when a stock market index has dropped 20% since its last peak. This is what happened on Wednesday: the Dow Jones ended the day at 20.22% below its level of February 12, 2019, when this benchmark index pracce at its highest in 11 years.
Concretely, the "bear market" reflects a large market clearance sale, when investors seek, all at the same time, to get rid of their securities because they anticipate a worsening of the situation and large losses in the near future.
The "bear market" represents the second level of alert after the simple stock market correction, characterized by a fall in share prices of only 10% compared to their most recent peak.
All the Wall Street indices are not yet affected. The Nasdaq, the index of technological values, and the S&P 500, which regroups the quotes of the 500 large companies essentially American, escaped from the "bear market". They both finished Wednesday's session down 19% from February 12. But the falls recorded on the American financial markets, Thursday at the start of the session, seem to indicate that Wall Street is rapidly heading towards a generalized "bear market". Historically, this difference is not surprising: during previous "bear markets", the Dow Jones generally opened the ball, quickly imitated by the other main indices.
Only ten in a hundred years
On average, the financial markets have experienced one "bear market" per decade. These very violent stock market events are much rarer than simple "corrections". Since the 1930s, the S&P 500 has experienced 23 corrections for only ten periods of "bear markets", calculated the Irish bank First Trust.
But once installed, this market tends to last longer than a fix. It is spread, on average, over a period of 14 months, while a correction typically does not exceed three to four months.
Read also: "Coronavirus: and financial markets react to the health crisis"
The longest "bear market" on Wall Street lasted just under 3 years, from 1930 to the end of 1932, and had engulfed more than 83% of the market value of the 500 largest listed American companies.
Warning signs of a recession?
1930, 1973, 2000, 2007: four years marked by "bear markets" which shortly preceded recessions which marked the spirits. It would be easy to conclude that these financial panics systematically announce periods of economic crises. After all, "bear markets" "indicate that investors have lost confidence in the fundamentals of the economy," summarizes the New York Times.
But it's not always the case. Thus, at the end of the 1940s, stock market values had broken through the ceiling and a "bear market" had intervened to bring the potters back to Earth in about ten months. The 1987 "bear market" had very little to do with the real economy since the stock market panic was then triggered by a runaway of trading algorithms, which were still in their infancy. start.
Nevertheless, the brutal fall of this month adds water to the mill to those who anticipate that the Covid-19 will tip into recession, before the end of the year, a global economy already weakened by the China-US trade conflict.
Even if the economy manages to escape a crisis, the "bear markets" are still painful events for investors and listed companies. During the 2007 crash, the plunge in stocks had erased more than 50% of the total market value of the S&P 500 index.
This time, the fall seems even more brutal. The Dow Jones lost more than 20% of its value in just one month, a sad historic record. In other words, in about thirty days, the New York Stock Exchange erased 5,000 billion dollars of stock market values.
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