Nifty sharply falls by 38% from life time high in just 2 months and almost down by 35% in last one month.
It is sharpest fall which market has ever seen in its history.
Let’s understand the gravity of Covid 2019-
If this numbers turns true, be prepared for the worst.
Before we understand current situation let me explain the last big stock market meltdown in detail-
There are many crisis that lead to crashes in history, including current stock market situation. I am comparing current situation with 2008 and 1929 bear market.
This fall seems the sharpest than the Global financial crisis of 2008 & great depression of 1929. It seems that it is more intense as well.
Let us understand each of the above stock market crash in detail-
1. Great depression of 1929–1933-
During great depression, the market was down by almost 90%. (YES 90%)
Market fall during great depression-
What was happened during great depression-
Great depression was caused by serious weakness in the economy, unevenly distributed Income in US and Europe, spending more than what people use to earn.
Because of lingering effect of world war (1914–1918) and mounted debt taken by Europe during world war and default in repayment of such debt.
Investor lost faith in US economy due to which the stock market started falling down.
At the height of the Depression in 1933, nearly 25% of the Nation's total workforce, 12,830,000 people were unemployed.
If at all worker saved job, their daily wage felt by 43% during 1929 to 1933
Half of the banking institutions had became bankrupts
Industrial production was dropped by almost 50%
Worldwide hunger, poverty and what not
It took 25 years to reach at Pre depression level, such intense was the level of draw down-
2. 2008 global financial crisis (GFC)-
The global economy was growing and people across the world were making money in stock market.
Problem started with USA housing loan market, where banks has started giving loans to those persons having very low or no Income at all (So called subprime class)
Every other person was buying property by taking loans and thus, the property prices were increasing.
On Increased property prices, people took home equities (top-up loan), so overall household debt increased substantially.
Developers were doing new construction and to cater the demand of housing market banks were raising money through different and risky financial instruments.
In such market everybody was ignoring risk part. From credit rating agencies to underwriting, everything was relaxed. People were taking loans and banker was making money.
Finally bubble busts, People started defaulting in loans, property prices crashes AND THAN Dow Jones Industrial average falls all way from 13930 to 6470
Big banks like Lehman Brothers files for bankruptcy.
Lehman Brothers filed for bankruptcy on Sept. 15, 2008, with $639 billion in assets and $619 billion in debt.
Millions of people lost their retirement savings.
Hundreds of thousands lost their house and jobs.
Obviously world’s largest economy was in trouble. Banks from other subcontinents were having exposure to US banks and that had negative impact across the globe.
It simply contributed to the erosion of USD 10 trillion market cap across the globe.
Nifty was down by almost 65% and reaches to level of 2005.
Dow Jones was down by almost 55% and reaches to level of 1996 Yes. decades gain gone in days -
This was 2008, Hunger poverty, unemployment, No house, lost retirement savings only debt, It was like rebirth with lots of debt and responsibility.
3. Wuhan CORONA virus or Covid-19 or Chinese virus- Just look at the image these are not team of doctors, They are crew member of Air India at wuhan Airport.
COVID-2019 or Wuhan Corona virus Impact-
A virus which is communicable (Even in air) and we have no cure for the same.
The corona virus or COVID-19 is affecting 195 countries and territories around the world. Almost 4 Lacs cases and 16500 reported death, Almost 1 lacs new cases in last 2 days while India has just started.
This is happening for the first time in the history of the world that entire world is facing same problem. Even during world war these many countries which were unaffected
In Indian history this is for the first time Indian railway halted their services.
This is for the first time more than 70% of world population is completely locked down.
For the first time in 30 years crude oil is trading near 20 USD a barrel
Effect on US economy-
Jan Hatzius’s team at Goldman Sachs said in a report that they now expect the world economy to “contract about 1 percent this year,” which is a bigger drop than during the financial crisis of 2008-2009.
It has disrupted the global supply chain, entire world is disconnected and even local commute is not possible. City like NewYork is completely locked down.
James Bullard, president of the Federal Reserve Bank of St. Louis, told Bloomberg that unemployment could reach 30 percent in the second quarter due to coronavirus-related closures of retail stores and businesses. He said the GDP could plummet 50 percent.
Bank of America is forecasting a decline close to 25 percent in the second quarter, and JPMorgan Chase & Co. expects a 14 percent drop.
Economists have said a worldwide recession is already here.
JPMorgan Chase said Chinese gross domestic product dropped 40 percent in the first quarter, the most in a half-century.
Can’t estimate the effect on Indian economy but if we can’t stop it here forgot the economy entire budget can go into healthcare just to survive.
Current and next week is most crucial for entire world, While Italy has reached to a peak point (At least data is indicative so) but situation in rest of the Europe, USA, Iran and most importantly in India is very grave.
Such event have very long effect on economy, Don't expect sudden or V shape recovery in market.
Expect strong rumors and news of big bail out, stimulus packages (Yes most of the government has already announced, some will announce soon ) to revive economy and news based rally but unless we see stability in cases. We prefer staying away from the market and be on cash in the meanwhile. This can be even bigger than 2008. But if you have already invested no sense in doing redemption in panic at depressed prices