With the Dow Jones industrial average and the S&P 500 tumbling into official correction territory on Thursday, you are no doubt wondering if the current selloff is the start of another full-on bear market rout. In other words, is this 2008 all over again?
That was a particularly brutal selloff that decimated dividend payouts, killed some Wall Street behemoths and eventually cut the S&P 500 down by more than 50 per cent by early 2009. Therefore, it is only natural that investors would be fearful of a repeat so soon after earning back much of the lost ground.
However, Joshua Brown at the Reformed Broker raises a good point (via his colleague Barry Ritholtz): Every setback doesn't have to be a repeat of 2008.
"[Investors]forget that if we have a double-dip recession, it can be just a garden-variety recession. It doesn't have to be another apocalyptic, world-stopping calamity," he said. "Let's say we do fall into a double dip as all that spent stimulus wears off, a regular recession without all the fireworks and institutional failures of the last one is not only possible, it is more likely. In other words, think 1938 and not necessarily 2008."
Meanwhile, Bespoke Investment Group reminds us that last year's selloff was actually more brutal than this one - so far, at least. Right now, the S&P 500 is down just over 10 per cent from its high in late April, conforming to the popular definition of a correction.
"Last year we had a similar correction that started at just about the same time and was caused by pretty much the same thing," Bespoke said on its blog. "With a decline of 18.95 per cent from peak to trough, last year's correction actually got much worse than where the current correction stands."
David Berman