Global stocks have tumbled in recent days given a combination of fears over a second COVID wave in Europe, lingering disappointment over the Fed, banking concerns and overleveraged investor positioning. But US stocks have led the way and have been weakening since early September (Chart 1). The S&P500 is now down over 8% since its peak.
To put this into context, we look at S&P500 drawdowns, or declines from peaks, since the start of the bull market in 2009. The latest drawdown ranks as the 8th worse over this period (Chart 2). There were similar drawdowns in 2012 and early 2010 before markets rallied again. However, there have been six where the drawdown was more protracted and ended up ranging from -14% to -34%.
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Global stocks have tumbled in recent days given a combination of fears over a second COVID wave in Europe, lingering disappointment over the Fed, banking concerns and overleveraged investor positioning. But US stocks have led the way and have been weakening since early September (Chart 1). The S&P500 is now down over 8% since its peak.
To put this into context, we look at S&P500 drawdowns, or declines from peaks, since the start of the bull market in 2009. The latest drawdown ranks as the 8th worse over this period (Chart 2). There were similar drawdowns in 2012 and early 2010 before markets rallied again. However, there have been six where the drawdown was more protracted and ended up ranging from -14% to -34%.
What the ingredients of the largest drawdowns? The biggest one was triggered by the initial incidence of COVID this year, the second largest was in late 2018 and was due to a combination of slowdown fears, trade wars, Fed hikes and possibly US midterm elections. The third largest was in 2011 and was due to the European sovereign crisis and US credit concerns.
Perhaps the closest parallel is to 2018. Similar to that period, we have concerns about global growth and we have a US election. But the biggest difference is the Fed – it is not hiking this time. The question, though, is whether they will step up to support markets?
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)