How The Current Coronavirus Stock Market Compares With Great Depression & Great Recession Markets

The spread of the coronavirus pandemic and turmoil in the crude oil markets caused the Dow Jones to crash by over 37% between February 12 and March 23. While the markets have recovered considerably since, with the Dow rising by over 30% from its March 23 lows driven partly by quick fiscal measures taken by the U.S. government,  the worst may not be over yet, as the economy slips into what appears to be a deep recession, with unemployment also soaring. In this analysis, we compare the ongoing crisis with other historic stock market/economic crises – namely the Great Depression of 1929 (-89% peak-to-bottom decline in Dow Jones), Black Monday of 1987 (-31%), the 2000s Recession (-34%), and the Great Recession of 2007-08 (-49%). We capture key trends in the Dow during and after major market crashes in our interactive dashboard analysis, ‘The Coronavirus Crash vs. Other Historic Market Crashes,’ parts of which are summarized below.

Timeline Of Past Crises:

THE CRASH

How Big Was The Sell-Off In The Dow Jones Through The Various Market Crises & How Many Months Did It Take To Get To The Bottom?

• The Great Depression was the most severe stock market crisis to date, with the Dow plunging 89% from its pre-crisis peak. The decline occurred over a period of about 34 months.
• The Great Recession saw the markets fall by 49% over a period of 16 months.
• In comparison, the Dow fell 37% over the Coronavirus crisis between February 11 to March 23, 2020, a little less than 1.5 months.

THE RUN UP TO THE CRASH

How Did The Markets Fare The 12 Months Preceding The Crash?

• The markets rallied by 158% through the year preceding the crash of 1929 and by about 33% through the year before the Great Recession of 2009.
• In comparison, stocks rallied by about 14% over the 12 months before the Coronavirus crisis.

THE RECOVERY

How Many Months Did It Take For The Market To Recover To The Pre-Crisis Peak?

• The markets took about 25 years to recover to their pre-crisis peak after bottoming out during the Great Depression.
• In comparison, it took about 4 years after the Great Recession of 2007-08 and a similar amount of time after the 2000s crash.
• As of May 22, 2020, the Dow had jumped by over 30% from its March 23 lows but still remains down by about 17% from its pre-crisis peak. The technology-focused NASDAQ index, on the other hand, has fared better, remaining in the green year-to-date.
• Since it has been just about 3 months since the coronavirus market crisis began, it’s very possible that the declines could continue going forward.

IMPACT ON THE ECONOMY

How Much Did GDP Decline Through Various Crashes?

• GDP shrank by about 27% through the Great Depression and by about 5% from the Great Recession of 2007-08.
• The economic fundamentals of the COVID crisis are looking far worse than previous recessions. U.S. GDP shrank by 4.8% in Q1 2020 and a contraction of over 30% in Q2 appears likely. Unemployment figures stood at 14.7% in April, and the number is likely to cross 25% ^[1] in May – approaching levels of the 1930s depression.

While the equity market has been upbeat over recent weeks, the eventual recovery in the U.S. economy and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Our complete set of analyses about the impact of the coronavirus outbreak on individual companies is available here.

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1. CNBC [↩]