US Stock Market Enters Bear Market After 11 Years, What Is the Outlook?

[Asia Economy Reporter Song Hwajeong] As the U.S. stock market enters a bear market for the first time in 11 years, attention is focused on future prospects.

According to NH Investment & Securities, on the 13th (local time), the three major New York indices all showed declines in the 9% range, reflecting concerns about an economic recession due to the novel coronavirus infection (COVID-19). The S&P 500 fell 9.5%, the Dow Jones -9.9%, and the Nasdaq 9.4%, with the Dow recording its largest single-day drop since Black Monday in 1987. The S&P 500 index fell 26.7% from its peak, officially ending an 11-year bull market.

Jo Yeonju, a researcher at NH Investment & Securities, analyzed, "Despite large-scale quantitative easing in the U.S. and Europe, doubts about the effectiveness of monetary policy and distrust in the Trump administration's fiscal policy execution led investors to preemptively price in a recession and enter a bear market. Concerns have expanded that U.S. consumer sentiment, which has supported the global economy, will freeze as all events related to the spread of COVID-19 are being canceled day after day."

There is an opinion that fiscal policy is necessary to defend the stock market. Ha Inhwan, a researcher at Meritz Securities, said, "The U.S. stock market fell about 10%, with a weekly return of -18%. Past cases with similar declines include twice in 1929, 1931, 1932, 1933, 1937, 1987, and now." These are cases where the daily return of the S&P 500 was below -8% and the weekly return below -15%, with six out of seven occurring during the Great Depression period (1929?1937). The other instance was Black Monday in 1987. Researcher Ha explained, "Although it is still difficult to judge, assuming the worst case, preparations for a scenario like the Great Depression may be necessary. This means that although prices may appear cheap due to the sharp drop in stock prices, one must be very cautious about buying at low prices." He added, "As seen in the Great Depression cases, the effectiveness of monetary policy in defending the stock market is limited, and large-scale fiscal policy is needed."

Researcher Jo said, "The U.S. House and Senate have decided to postpone the recess scheduled for next week due to COVID-19, which indicates an active intention to discuss measures for fiscal policy implementation," adding, "There is growing recognition that the effect of monetary policy has weakened, and the need for fiscal policy implementation is emerging. The future market trend ultimately depends on Congress, but the timing of execution is important."

Researcher Jo predicted, "The market is expected to watch the Federal Reserve's aggressive policies, the decisions of Congress, and the trends in the number of confirmed cases in Europe and the U.S."

This content was produced with the assistance of AI translation services.