Crash Comparison - 1929, 2000, 2008 and 2020

21 mar 2020

1929 - Crash


2000 - Crash


2008 -Crash


2020 - Crash

Which of the prior three major crashes most closely resemble the 2020 crash?

Certainly, not the 2000 crash, the initial drop is of equal magnitude, however the 2000 crash took over 365 days to reach that low from the highs, the 2020 crash has plumbed lower than 30% in just over 30 days.

Similar story for the 2008 initial crash, the final leg down in 2008 after the collapse of Lehman Brothers would be the closest match, but this is still not equal to the magnitude drop we are experiencing in 2020, when you consider that the post Lehman drop was 48% over 150 days, this equates to roughly 0.3% a day, the 2020 drop by comparison is closer to 3x times the rate of drop, at over 1.0% per day in decline.

Even the initial 1929 stock market drop, that eventually lead to the great depression took 3x times as long to reach the 30% range.

Yes, the macro environments for these drops were very different, i understand this.

But it is worth considering just how unique these markets are at present time, with a combination of automated trading, real-time news feeds, easier access for retail investors and far higher leverage than ever before, this creates a highly volatile trading environment that can pivot at a moments notice.

My personal belief is that the pain is not over, there will be a bounce at some point, however i will not be participating in that rally, i will be waiting to short.

I think the ultimate bottom will be between the three crashes highlighted here, not quite the 90% devastation of the 1929 crash, but also not a 'typical' crash of 50% either.

It may sound crazy now, but, i do believe that the SP-500 "COULD," emphasis on "COULD" be lower than at the 2008 peak before the market bottom, in other words, i believe that the last decade of market gains may very well be erased.


This will obviously be dependent on the handling of Covid19 by governments around the world, this is not due to the loss of life (although that would be a global tragedy), it is instead due to the wave of defaults and bankruptcies that could flow out of this crisis as a result of the social distancing policies that governments will HAVE TO, not may have to, but have to employ in order to flatten the curve.

This will include businesses closing for for several weeks, potentially even several months, this in turn will cripple airlines, cruise ships, hotels, casinos and a host of other industries. Many of which are currently looking to the federal government for a bailout, this is also not mentioning the small businesses and how they will be impacted, or the knock on effects that this will have on employment, or lack thereof.

In short, the economic impacts and the societal impacts that will flow from the Covid19 virus are far-reaching, the macro environment is nothing like 2000 or 2008, the system is MORE unstable, not less, couple this with the potential for 1929 style unemployment and you have a recipe for disaster.


-TradingEdge