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As the Coronavirus (COVID-19) sweeps the globe, so did one of the most volatile two weeks at the New York Stock Exchange since 2008. Monday, March 16, 2020, saw the Dow Jones’s worst point drop in history as it tumbled nearly 3,000 points, according to CNN. The Dow Jones closed down 12.9%, and the S&P 500 and Nasdaq Composite also ended 12% down. Fears of a recession loom thick as analysts look to key similarities between the 2008 financial crisis and today’s unpredictable climate.
Tuesday, March 17th saw a massive rally after the near crippling sell-offs on Monday the 16th. The Dow Jones, S&P 500, and Nasdaq Composite all saw 5-6% gains after the announcement of a forthcoming stimulus package, as reported by The New York Times. But on Wednesday, March 18, the Dow Jones dropped 6% as uncertainty about the future continued to drive instability. This back-and-forth looks like the turmoil of late September and early October of 2008.
While the stock market has seen larger percentage drops over the course of time, March 16, 2020 marked the largest single-day drop in history. Generally, steep crashes in the market take time. The Great Depression, for instance, saw an 89% decline from its peak, but the fall didn’t happen overnight. The decline occurred over nearly three (3) years. The 2008 financial crisis resulted in an almost 50% drop in the markets from their peak over the course of around 16 months, as evidenced in a recent article comparing market crashes by Forbes. In the face of the COVID-19 pandemic of 2020, the Dow Jones dropped by over 30% in about a month.
The current volatility of the markets makes the current situation similar to 2008. In 2008, investors began a massive sell-off despite efforts by the federal government to bail out failing industry giants such as Fannie Mae, Freddie Mac, and AIG. The crisis hit a head when Lehman Brothers filed for bankruptcy in September 2008, sending shockwaves throughout the world and throwing the idea of “too big to fail” out the window. From September 29, 2008 through the end of October, the markets saw daily plunges, followed by explosive recoveries the next day.
We see the same trends in the capital markets now. Stocks tanked on March 16th only to see a 5-6% gain across the board the next day. By the 18th, we saw the Dow Jones drop to a near three-year low. In an effort to calm investors, the Federal Reserve cut interest rates to near zero. The last time an emergency rate cut to near zero occurred was when the Federal Government did so in December of 2008.
The current market instability is not only the result of a pandemic forcing the world to go into lockdown, but also a result of a failing oil industry. While all eleven (11) S&P sectors were down, energy was among the worst. Oil prices in the United States are down 24%, according to CNN Business. The industry is being devastated by excess supply and shrinking demand. Coronavirus fears exacerbated an already-growing problem, as the travel industry came to a near grinding halt as a result of the pandemic.
European and Asian markets have seen similar instability to the New York Stock Exchange, as concerns of a global recession continue and the world waits in quarantine. Across the world, governments are struggling to respond to ease peoples’ fears. The European Central Bank announced that it would launch a €750 billion purchase program in response to the coronavirus pandemic. As reported by the Financial Times, the package is a “response to the worsening economic and financial market turmoil caused by coronavirus.”
If you have suffered losses because your advisor recommended that you invest heavily in a risky sector of the market, in purportedly “safe” investments, or in other risky investments, then you might be able to recover your losses through a Financial Industry Regulatory Authority (“FINRA”) arbitration, through other private arbitration, or through litigation.
Unfortunately, some investors have experienced greater losses because their portfolios are over-concentrated in risky investments. For instance, your financial advisor or stockbroker might have recommended that you invest heavily in a single stock, industry, or sector.
In the current market, an over-concentration in travel-related stocks or a risky sector like energy (oil and gas) could be devastating. As an investor, your financial advisor should recommend an investment portfolio that is well-diversified with a suitable level risk. Brokers, investment advisors, and bankers are required to recommend investments that are suitable and in line with your investment objectives.
When considering whether to take legal action against your stockbroker, banker, or financial advisor, consider whether any of the following apply to your situation:
Attorney Brian Levin has recovered around $100 million on behalf of his global clients for stockbroker misconduct, negligence, and mismanagement of investment portfolios. Contact Levin Lawtoday at (305) 402-9050 to schedule a free case consultation. Most cases are handled on a contingency-fee basis.