Economic crises compared: from 2008 to 2020

Although they originated from profoundly different events, financial analysts have, since the first effects of the Covid-19 on the financial markets, attempted to compare the economic consequences and consequences of the two largest and most devastating economic crises that have occurred since the Great Depression of 29.

Let's look at an analysis using the time frame of 150 days starting from 11th of March 2020 when the World Health Organization defined as "pandemic" The epidemiological trend of the coronavirus. In the face of a very serious shock suffered by the economic system due to the restrictive measures taken to limit contagion, more than 68% of companies that are part of the S&P 500 are now reporting higher prices than those prior to the virus.. This is especially true for those sectors that have benefited from these profound lockdown changes, such as the IT and non-consumer goods sectors, to which the big e-commerce players are linked.

Analysing at the first 150 days from the start of the pandemic and compiling a ranking of the listed companies that performed the best, we see a clear predominance of the tech sector with 81% of PayPal, the giant of electronic transactions, then the semiconductor manufacturers and processors such as Amd and Nvidia (with 87% and 71.6% respectively). Of course, to these you have to add giants such as Amazon with a 67.4%, Facebook registering a 50.6%, Apple with 55.8%, eBay with 53.2%. In addition to the aforementioned sectors of tech and biotech, we have seen excellences such as West Pharmaceutical, which produces pharmaceutical packaging, with a positive performance of 90.6%, shipping companies such as Ups and FedEx that register a 69% and a 52.1% respectively, or the chain of restaurants, Chipotle Mexican Grill with a 68.4%.

If this data already amazes the scope of what is going on, observe what is happening within the Nasdaq that will impress you even more. Starting with the big biotech players such as Moderna, which recorded a 231.7% increase in 150 days thanks to its advances in vaccine development, or companies that benefited from the changes resulting from lockdown such as smart working companies like Zoom in the field of video communications, which marks a 138.5% increase or the DocuSign with a 156.5% increase in the electronic contracting sector.

Also in the tech we can see the explosion of price recorded by Tesla with a 125.1% increase on the American list that leads Elon Musk's company alone to capitalize more than the entire European automotive industry.

Taking a leap and back in 2008 it is observed in a completely different way from the reaction of the current financial markets, only 25 companies listed in the S&P 500 recorded an increase in their quotes over 150 days after the Lehman bankruptcy. On that occasion, the only companies that failed to get involved in the collapse of the global financial system were those linked to essential services, such as transport, the big food discount chains and the basic pharmaceutical industry. The Walmart discount chain recorded a positive performance of + 20% and with it also the transport company Old Dominion Freight Lines with + 23.2% and the pharmaceutical company Amgen with + 24.3%. Positive results were also recorded by the H&R Block, a tax consultancy company, with + 25.8%, by the biotech company Vertex Pharmaceuticals with + 30.8% and by the discounters Dollar Tree with + 60.8%, against these the 95% of the stocks that made up the S & P500 reported negative performance at the end of 2008.

Even the strongest tech companies, which today dominate the market unchallenged and have, in these days, driven up the price lists, were overwhelmed by the financial crisis and suffered a contraction of 56.91% for Apple, 45.39% for Microsoft and 44.65% for Amazon.

If we compare the data we see a profound difference in investor reaction to the two global crises although they originate from profoundly different events. It is recalled that in 2008 it was the global financial market that collapsed due to imperfect regulation of the same and the criterionless use of certain financial instruments that generated a spiral of bankruptcies of the major US business banks and that had a heavy impact on the real economy. The current crisis is very different, it is an exogenous event that has generated a sudden collapse in global demand and supply due to viral expansion.

But, on closer inspection, the main factor to which this profoundly different reaction of the financial markets can be related is due to the different economic policies put in place to deal with crises and, above all, to the different timeliness of intervention. Just look at the response of the central banks, which in 2008 acted with very expansive monetary policies but less strong and sudden than those implemented as a result of the lockdown. Consider that the Federal Reserve took more than six months to raise interest rates to zero; It has now taken only a few days to activate a 700 billion euro quantitative easing operation at the same time. Add to that an easing of the US Congress' 2200 billion dollar tax policy.

This liquidity injection, together with a zero interest rate level that makes the bond market unattractive from a profitability point of view, has flowed into equity markets, leading some sectors prices to seem completely unrelated to the real economy still depressed by the effects of lockdown.