One day, this battle against the coronavirus will be won. But the world after this battle may look different from the world which we had before the start of this pandemic. After this battle, we will have to fight against the economic crisis.
Global markets were in free-fall on Monday. The fall was intense to cut the Federal Reserve interest rate to near zero. And the investors are fearing that the coronavirus pandemic is taking the economy into recession.
The S&P 500 tumbled 9% on Monday, erasing all of its gains from a furious rebound late on Friday that happened seconds after Donald Trump declared a national emergency to combat the rapidly spreading coronavirus. And according to the experts, this crash bears a resemblance to the stock market crash of 1987.
The stock market crash of 1987 was a rapid and most severe downturn in U.S. stock prices that occurred over several days in late October of 1987. The crash originated in the U.S., the event impacted every other major stock market in the world. In the five years leading up to the 1987 crash, the Dow Jones Industrial Average (DJIA) had more than tripled. On October 22, 1987–known as Black Monday–the DJIA fell by 508 points, or by 22.6%, the largest percentage drop in one day in history.
A similar pattern was observed on Monday, according to the Johns Hopkins tracker, COVID-19 has killed 190,810 worldwide. But the S&P 500 SPX+1.39% has climbed 25% from its closing low on March 23, after dropping as much as 34% from its February peak. In both of these falls, it is thought that the cause is the precipitation by computer program-driven trading models that follow a portfolio insurance strategy. But again it is too early to predict the resemblance of both the crashes as the roots of the COVID-19 crash remain hidden while the 1987 crash sparked fears of extended economic instability around the world.
We should always remember that crashes occur at the end of an extended bull market. But this time there is no bull market and the problem is severe (COVID-19) and still an unknown way to tackle it up.