With the coronavirus pandemic expected to trigger another global recession, let’s compare how the charts looked back then and how things are going now.
Late last month, the DJIA suffered its steepest single-day fall of 1,190 points just before U.S. equity indices chalked up their worst week since the 2008 financial crisis.Not surprisingly, this prompted market participants to fear that a repeat of the bear market back then may be in order.
Recall that this bear market lasted by around 17 months, during which the S&P 500 index lost roughly 50% of its value, even as governments and central banks staged a coordinated effort to prop the markets up.
The latest tumble looks like a much sharper drop in a span of less than a couple of months, suggesting that stronger bearish momentum might be in play.
Now in times of market crisis, investors usually seek the safety of gold because the shiny precious metal is able to maintain its intrinsic value, unlike other assets.
As you can tell from the chart below, the safe-haven asset staged quite the rally during the financial crisis and even during the years that followed. Check out how the bling nearly tripled its value from $700 to $1,900!
The precious metal is already in the middle of a climb these days, and the ongoing coronavirus market turmoil could provide additional momentum for a longer-term climb.In early 2008, gold initially took a bit of a beating as it moved in tandem with higher-yielding assets like equities and other commodities. A flurry of interest rate cuts and stimulus efforts from central banks, not much different from what we’re seeing lately, eventually sparked a divergence between stock markets and gold.
Ah, the CBOE Volatility Index or VIX, better known as Wall Street’s fear index… As you’ve probably guessed, this reading is spiking back to its old highs as investors scramble to make sense of what’s next for the markets.
However, the recent VIX highs are still a few points shy of the 2008 recession levels, suggesting that investors might not be panicking as much.
Comparing the size of the year-to-date move in 2008 to that of 2020, though, shows a 108% gain versus a jaw-dropping 280% surge so far.
Last but certainly not least is the U.S. dollar index, which is basically the value of a basket of foreign currencies versus the Greenback. To be specific, it tracks the geometric average of six currencies, namely the euro, yen, pound, Canadian dollar, Swedish krona, and the Swiss franc.
It’s hard to spot a particular pattern emerging from the USDX movement these days in comparison to that of 2007-2009. Some say that the latest one mirrors that of late 2008, which suggests that it could be followed by another leg higher soon.
Spot any patterns that might be replayed this time around?