There has been a huge rally of 36 percent in the weeks that followed the historic crash of October 29, 1929. The Dow fell once more before it rallied by 50% in just five months, before further losses.
More recently, the 2008 crash sent the DJIA down by 42 percent before a 24 percent retracement that paved the way for a total 55 percent loss by March 2009.
Actually, it approximately and respectively took 25 years and 4 years for U.S. stock markets to fully recover from the 1929 and 2008 crashes.
Is this time different? The 2020 crash has been fast and furious with a 37 percent slump in just 51 days for the DJIA. The average has now made a 50 percent plus Fibonacci retracement from 18,591 to 24,633 from a historical top at 29,551, a 32.49 percent rally.
The S&P 500 and the NASDAQ Composite respectively have made a 28.77 percent and a 31.14 percent retracement, but mostly thanks to record high valuations of tech stocks like Alphabet (GOOG), Apple (AAPL) or Facebook (FB).
The fact that video chat startup Zoom (ZM) is now worth more than 5 of the largest airlines or that software leader Microsoft (MSFT) is now worth more than the entire French stock market CAC40 underlines the possibly excessive contribution of tech stocks to the latest rally.
Also, many asset managers put forward that the crash mostly happened because of a health crisis that, though unpredictable, remains a temporary phenomenon. However, its full economic and social consequences are still unknown and could be significant.
The growing tensions between the USA and China are putting any hope for a long-term trade agreement in jeopardy and pre-Coronavirus statistics did show that global growth was weakening, likely indicating an end to the longest expansion cycle ever.
The durability of the latest rally will mostly depend on the strength of the post-lockdown economic recovery and the overall capacity to circumvent any big relapse of the Coronavirus epidemic.
Nonetheless, a V-shaped recovery along with a quick comeback to what was just prevailing before counts among the “less likely hypothesis”, therefore advising investors for increased caution.
Contents published on Cyceon.com do not constitute investment advice.
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