US Wall Street: "COVID-19 Stock Market Crash, The Worst Is Yet to Come"

Bank of America "S&P 500 Index Bottom at 1800 Level"
Impact of COVID-19 -32%, Still Milder than 2008 Financial Crisis -57%

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] There is a forecast that the plunge in the U.S. stock market, which has already lost more than one-third of its market capitalization since the outbreak of the novel coronavirus disease (COVID-19), will continue further. Compared to past crises, the sell-off is expected to persist, and stronger support measures from governments worldwide will be necessary to prevent the resulting damage.

The U.S. Wall Street Journal (WSJ) reported on the 22nd (local time), citing investment industry experts, that "it is still too early to assess the full economic damage caused by the COVID-19 impact," and "the market has not yet fallen as much as during past crises, and the worst is yet to come."

According to global investment bank Goldman Sachs, the U.S. S&P 500 index recorded 2304.92 on the 20th, down 32% from the peak of 3393.52 recorded on the 19th of last month. However, this decline is still less than the 57% drop during the 2008 global financial crisis and the 49% drop during the early 2000s dot-com bubble burst. The S&P 500 index has shown declines ranging from 20% to 60% during each crisis since the double-dip recession period following the second oil shock in 1980, when it fell 27%.

Goldman Sachs previously forecasted that the U.S. GDP would decrease by 24% in the second quarter of this year, but stated that the current stock price decline related to COVID-19 is still relatively mild compared to stock market crashes during past historical crises. They also predicted that the S&P 500 index would bottom out around the 2000 level. Credit Suisse projected a slightly higher bottom at around 2200 for the S&P 500 index. Bank of America presented a more pessimistic outlook, forecasting that the S&P 500 index will fall more than 20% further to around 1800.

Experts argued that governments worldwide need to deploy much stronger economic stimulus measures than currently in place. Didier Borowski, Head of Macroeconomic Research at Amundi, stated, "It appears that governments have not yet introduced sufficient fiscal stimulus measures," and added, "Stimulus packages amounting to 2-3% of GDP will not be very effective in stopping the market sell-off." Evan Brown, Head of Asset Strategy at UBS, also pointed out, "Central banks and policymakers such as the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) will need to take more proactive measures to provide loans for corporate bonds."

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