Monday was the worst day for US stocks since 1987’s “Black Monday” — and there’s no real recovery in sight.
What happened: The Dow fell 12.9% as fear about the coronavirus pandemic and the ensuing global recession escalated, wiping out three years of gains. The S&P 500 dropped 12%. US stock futures are up slightly on Tuesday, but the market mood remains grim.
The VIX, a gauge of stock market volatility, spiked 43% to 82.69 on Monday as coronavirus fears ripped through Wall Street. That takes out the previous record set in 2008.
It’s the VIX’s fastest spike since the 1987 crash, according to Bram Kaplan, executive director of equity derivates strategy at JPMorgan.
“The Covid-19 pandemic sparked the fastest reassessment of equity market fundamentals and risk in the last 30 years,” Kaplan told clients on Monday.
He noted that the S&P 500 recorded its quickest bear market ever, falling 20% from its peak in just 15 trading days. That’s twice as fast as the next quickest meltdown. That was in 1929, and it took 30 trading days.
Feeding the volatility is the rapid thinning out of markets, which is making it difficult for buyers and sellers to put a price on assets. Kaplan notes that open orders for S&P 500 futures have plunged about 90% to record lows since the start of the Covid-19 panic.
Investors have woken up to the fact that the world is entering a sharp recession as curfews and lockdowns ripple across the United States and Europe. The question now is just how bad the economic contraction will be.
“Whereas 10 days ago there was some legitimate uncertainty about whether the global economy was in the process of going into recession — 10 days later, there’s no question that it is,” David Wilcox, former head of research and statistics at the Federal Reserve Board, told me.
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