A recent Barron’s article discusses the current market downturn within the context of historical data going back to the 13th century—which shows there is “ample precedent for the current crisis.”
“Many of the biggest economic contractions came during pandemics, with the Black Death of 1349 resulting in a 23.5% decline in England’s economy, the second worst on record,” the article reports, after the 25.4% in 1629 when King Charles I dissolved Parliament. In U.S. history, the worst years occurred in 1932 (12.9%), and 1946 (11.6%). The article reports that economists at Deutsche Bank estimate a 4.2% decline in GDP in 2020 which would rank as the 9th largest decline since 1900.
According to Deutsche Bank strategist Jim Reid, the coronavirus-related contraction will probably rank among the 10 worst for many countries, which is “remarkable given the unprecedented size of the monetary and fiscal stimulus that governments have provided.”
The article ponders how much of a guide history can provide regarding a recovery, citing comments from Rosenberg Research founder David Rosenberg who notes that if history’s bear markets might provide some guidance about what might lie ahead for stocks. “In markets, as in life, the higher you are, the harder the fall. It’s also never about historical percent changes, cycle by cycle, but the reversal from the prior market condition,” says Reid.
This time could be different than others, however, given the huge fiscal and monetary policy responses. The article concludes, “The Fed, for the first time, is buying corporate bonds. Other central banks have moved into buying equities. And while the odds are stacked against the Fed stretching from purchasing corporate debt to buying stocks, the only lesson of recent history is never say never.”
