China’s markets set the tone for the day (and perhaps the week) with an 8.5 percent blood-letting. Global stocks followed suit, which came after last week’s 5 percent tumble.
Rather than tell you that markets are oversold — you already know that anyway, and oversold markets can become even more oversold — I want to bring a few interesting data points to your attention.
Let’s begin with China’s markets. That is where much of the turmoil seems to be originating. A little context will go a long way.
One year ago, the Shanghai Stock Exchange Composite Index stood at 2209.46; i’ts now 3209.91. It closed last year at 3234.67, and peaked this year at 5166.35. To put those returns into percentages:
One year: +45.28 percent
Year to date: -0.77 percent
Year to date peak: +60.95 percent
Peak to trough: -37.87 percent
It is amazing that China is little changed for the year, down less than 1 percent. That gives you some idea of how absurdly inflated its markets had become in a very short time. Its easy money policies and encouragement of middle-class stock speculation (Why does that sound so familiar?) inflated a market boom that (Surprise!) is now unwinding. What those number show is quite telling.
Next, let’s move to U.S. The chart below is courtesy of my colleague Josh Brown. It looks at the 5 percent, 10 percent and 20 percent decline in the Standard & Poor’s 500 Index since its inception in 1957. There are several fascinating aspects to this data series.
S&P 500 1957 to present
Source: The Reformed Broker
Continues here: Just How Sick Is the Stock Market?