An Unprecedented Pullback
The recent pullback in the stock market has been shocking. From its peak in February, the S&P500 erased more than 30% of its value before clawing back some gains this last week.
Unprecedented, yes, but this is not to say it was unwarranted. Yesterday the initial jobless claims report was released – over 3 million Americans filed for unemployment in just the past week, a jaw dropping figure. The speed of this economic contraction is like nothing we’ve ever seen before.
Looking below, the first and third charts show the price return of the S&P 500 from peak-to-trough during periods of recession from 1968-Present. As you can see, this recent pullback looks eerily similar to the one in 1987. 1987 was a strong yet fairly short recession, and the S&P 500 tested its bottom three times before recovering. Fortunately, in 1987, the economy did not see an exaggerated increase in unemployment.
The second and fourth charts show the running total of the difference in weekly initial unemployment claims. You can read this as a reflection of the speed at which people were becoming unemployed. Clearly, the pullback in stocks this year was warranted.
The speed at which we are entering this recession is intimidating, but what’s encouraging are the conditions we’re seeing on the other end. First, the Federal Reserve has acted quickly to cut interest rates and engage in massive quantitative easing. Second, Congress is currently passing a large fiscal stimulus/relief package to cushion the blow and jump start a future recovery. And most importantly, we are seeing a global effort to control, mitigate and find a cure for COVID-19 (which we will). While investors’ appetite for risk for the time being will largely depend on the ability to control the spread of this virus, the foundation necessary to fuel a strong recovery is already in place.
Prior Recessions
S&P500 Return During Prior Recessions Peak-to-Trough
Initial Jobless Claims (running total of weekly difference)
In thousands
Number of weeks after market peak
2020
S&P500 Return During Prior Recessions Peak-to-Trough
Initial Jobless Claims (running total of weekly difference)
In thousands
Number of weeks after market peak
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