2020 Stock Market Crash
Summary
Between the 19th of February, 2020, and the 23rd of March, 2020, the S&P500 (^GSPC) fell from 3,386.15 to 2,237.40, using adjusted closing prices. It subsequently climbed back to 3,276.02 on the 22nd of July, 2020. Some people seem to think it will keep going. I expect a massive crash.
To predict the upcoming (?) 2020 stock market crash, I propose examining the market using three techniques:
- Historical crash analysis
- Price-to-earnings (or revenue, etc.) analysis that attempts to factor defaults
- Extrapolating based on the market-to-economy relationship
I could also employ a pure chartist approach, perhaps to give the counterfactual.
S&P 500 data
As much as I love the Dow, it accounts for about 25% of the economy, whereas the S&P500 accounts for around 80%. So I'll likely use the S&P500. I'll download both from Yahoo:
- https://finance.yahoo.com/quote/%5EGSPC/history?period1=157766400&period2=1595548800&interval=1d&filter=history&frequency=1d
- https://finance.yahoo.com/quote/%5EDJI/history?period1=157766400&period2=1595548800&interval=1d&filter=history&frequency=1d
COMPUSTAT data
COMPUSTAT updates its fundamentals quarterly and monthly security files daily. I did a pull of the entire fundamentals quarterly database from 2015-01 to 2020-07. It has close prices, as well as highs and lows. I pulled close, as averaging highs and lows seems like it might be skewed given the context (especially over short time periods).
Historic Crashes
Data before the 1980s probably isn't useful. It was a different world back then, both in terms of globalization and in terms of how stock markets worked. So, I'll start with the 1987 crash and go forward from there. I'm going to suggest three classes of crash, like hurricanes:
| Class | Description |
|---|---|
| 1 | Flash crashes and other short-term market anomalies |
| 2 | Short to medium term economic disturbances that are limited to a sector |
| 3 | Economic crisis |
My starting list comes from a list of stock market crashes.
Using the largest decline on the Dow of the period as the crash day gives:
Data driven approach
Identify crashes as using the largest single-day declines on the DJIA:
| Date | Open | High | Low | Close | Adj Close | Volume | SingleDayChange |
|---|---|---|---|---|---|---|---|
| 10/19/1987 | 2046.670044 | 2164.159912 | 1677.550049 | 1738.73999 | 1738.73999 | 87230000 | -22.6% |
| 10/26/1987 | 1864.219971 | 1881.800049 | 1774.040039 | 1793.930054 | 1793.930054 | 35420000 | -8.0% |
| 1/8/1988 | 2046.579956 | 2058.689941 | 1898.040039 | 1911.310059 | 1911.310059 | 27440000 | -6.9% |
| 10/13/1989 | 2753.280029 | 2773.360107 | 2545.48999 | 2569.26001 | 2569.26001 | 37620000 | -6.9% |
| 10/27/1997 | 7714.399902 | 7714.419922 | 7159.919922 | 7161.200195 | 7161.200195 | 91830000 | -7.2% |
| 8/31/1998 | 8052.450195 | 8095.450195 | 7539.069824 | 7539.069824 | 7539.069824 | 117890000 | -6.4% |
| 4/14/2000 | 10922.84961 | 10922.84961 | 10201.53027 | 10305.76953 | 10305.76953 | 267580000 | -5.7% |
| 9/17/2001 | 9580.320313 | 9580.320313 | 8883.400391 | 8920.700195 | 8920.700195 | 565600000 | -7.1% |
| 9/29/2008 | 11139.62012 | 11139.94043 | 10365.4502 | 10365.4502 | 10365.4502 | 385940000 | -7.0% |
| 10/7/2008 | 9955.419922 | 10124.03027 | 9436.669922 | 9447.110352 | 9447.110352 | 362520000 | -5.1% |
| 10/9/2008 | 9261.69043 | 9448.139648 | 8579.19043 | 8579.19043 | 8579.19043 | 436740000 | -7.3% |
| 10/15/2008 | 9301.910156 | 9308.759766 | 8530.120117 | 8577.910156 | 8577.910156 | 374350000 | -7.9% |
| 10/22/2008 | 9027.839844 | 9027.839844 | 8335.299805 | 8519.209961 | 8519.209961 | 348840000 | -5.7% |
| 11/5/2008 | 9616.599609 | 9616.599609 | 9111.469727 | 9139.269531 | 9139.269531 | 264640000 | -5.0% |
| 11/19/2008 | 8420.69043 | 8504.639648 | 7987.080078 | 7997.279785 | 7997.279785 | 350470000 | -5.1% |
| 11/20/2008 | 7995.529785 | 8187.399902 | 7506.970215 | 7552.290039 | 7552.290039 | 528130000 | -5.6% |
| 12/1/2008 | 8826.889648 | 8827.049805 | 8141.359863 | 8149.089844 | 8149.089844 | 321010000 | -7.7% |
| 8/8/2011 | 11433.92969 | 11434.08984 | 10809.84961 | 10809.84961 | 10809.84961 | 479980000 | -5.5% |
| 3/9/2020 | 24992.35938 | 24992.35938 | 23706.07031 | 23851.01953 | 23851.01953 | 750430000 | -7.8% |
| 3/11/2020 | 24604.63086 | 24604.63086 | 23328.32031 | 23553.2207 | 23553.2207 | 663960000 | -5.9% |
| 3/12/2020 | 22184.71094 | 22837.94922 | 21154.46094 | 21200.61914 | 21200.61914 | 908260000 | -10.0% |
| 3/16/2020 | 20917.5293 | 21768.2793 | 20116.46094 | 20188.51953 | 20188.51953 | 770130000 | -12.9% |
| 3/18/2020 | 20188.68945 | 20489.33008 | 18917.46094 | 19898.91992 | 19898.91992 | 871360000 | -6.3% |
| 6/11/2020 | 26282.50977 | 26294.08008 | 25082.7207 | 25128.16992 | 25128.16992 | 647780000 | -6.9% |
Grouping them using 6-month windows gives 9 crashes:
- 1987/1988: 3 obs (including largest)
- 1989: 1 obs
- 1997: 1 obs
- 1998: 1 obs
- 2000: 1 obs
- 2001: 1 obs
- 2008: 9 obs
- 2011: 1 obs
- 2020: 6 obs (and counting, including second and third largest)
