How the 2020 global share slump and recovery ranks in history

Rollercoaster

Stocks saw a record crash followed by a record rebound in 2020, creating some disparity between markets.

The global stock market crashed at a record speed in early 2020 (Figure 1).

On its way to a total decline of 34%, it clocked up a 30% loss in just 40 trading days.

This is faster than any global stock market crash in at least the last 48 years that we have daily data on global stock market returns for.

A record breaking rebound

Astonishingly, in the eight months since, it has rebounded by 62%. The losses from this record-breaking crash were fully recovered by 23 August, only five months after the market bottomed and while the global economy was still deep in a quagmire. Since then it has sailed even higher, most recently on the back of positive vaccine news. The global stock market is now almost 8% above its pre-crash peak.

The crash was unusually severe in a historical context, and this recovery has been equally, if not more, extraordinary (Figure 2). Falls of this magnitude normally take years to recover from. On the previous three occasions when the market has fallen by more than 30%, it has taken nearly three years or longer for losses to be recovered. On average, a decline of 20% of more has taken two years to recover. Five months is unheard of.

The closest precedents are 1982 and 1998, when losses of around 20% were made up in only three months. However, to recover from a 20% decline, the market has to rise by 25%. To recover from a 34% decline, it has to rise by 52%. 1982 and 1998’s achievements pale into insignificance when compared in this way.

View Full Article – published by Schroders on 11th December 2020