TSX Tumbles into Bear Market Territory as Coronavirus Declared Pandemic
After an unprecedented 11-year run, the bull market has officially come to an end. On Wednesday, March 11, the World Health Organization declared the coronavirus a pandemic for the first time. This sent investors running for the exits. Most analysts believe the broader markets could give up additional ground over the coming weeks and rebound in the back half of 2020.
Shares experienced a huge, broad-based sell-off during the second week of March. The sell-off was so brisk it trigged a circuit breaker that halted all trades, twice. Once on Monday, March 9 and again on Thursday, March 12. When the S&P 500 experiences a seven percent drop, trading gets automatically halted for 15-minutes.
A halt to trading on the S&P 500 has only been triggered once before; on October 27, 1997, which is remembered by traders as “Bloody Monday.”
On Thursday, the Dow Jones Industrial Average moved into bear market territory, falling 20.3% off its February high. A bear market is commonly defined as a loss of 20% from a recent high. The crash marks the Dow Jones Industrial Average’s second fastest slide into bear market territory; 19 days. In November 1931, it took the Dow Jones Industrial Average just 15 days to tumble into a bear market.
Meanwhile, the S&P 500 and NASDAQ were both down 26% from their February highs. The TSX was down an eye watering 30% from its record high of 17,970.15 set on February 20; having erased all gains since the start of 2019.
The coronavirus, which has infected more than 124,000 people and resulted in nearly 4,600 deaths, is expected to disrupt the global supply chain and send the global economy into a recession.
How Long Does the Average Bear Market Last?
On average, a bear market for the Dow Jones Industrial Average lasts 206 trading days; there are 253 trading days in a year. The average bear market for the S&P 500 is around 146 days. Chances are good though that the current bear market will not last as long.
For that to happen, the coronavirus pandemic has to be effectively managed by governments and central banks around the world. Governments are taking different approaches to handling the coronavirus; Italy has closed its borders, Denmark has shut down schools and universities, the U.S. has suspended travel from Europe. Canadian investors were entirely underwhelmed by the Canadian government’s tepid $1 billion aid package.
To help curb the spread of the coronavirus, the NBA and NHL have suspended their seasons, March Madness will be played without fans, Major League Soccer has stopped play for at least 30 days, the JUNO Awards have been cancelled, and public gatherings have been banned in many places around the world.
On the economic front, central banks around the world are slashing their overnight lending rates and are expected to announce even further cuts this month and next. Moreover, the U.S. and other governments are expected to announce expansive emergency packages to stimulate the economy.
Will all of this work? Eventually. The bull run is expected to resume in the back half of 2020 and recoup all of its losses, as the effects of the coronavirus are contained and monetary and fiscal stimulus packages kick in. Until then though, it’s entirely possible that the markets could drop another 5% to 15%.
In effect, we are going to experience more short-term volatility. But, as we have seen throughout history, the markets will rebound, providing long-term gains.
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The record-breaking bull run has come to an end with the TSX, S&P 500, NASDAQ, and Dow Jones Industrial Average all in bear market territory. While the markets will eventually return to a bull market, this is not expected to happen until the second half of 2020. That doesn’t mean investors should sit on the sidelines waiting for the markets to rebound. The trading experts at Learn-To-Trade.com can teach investors how to make money when the markets are going up, down, or sideways.
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