A great deal has been said in the media (and on this blog site) about the performance of stock markets during February. In the face of unrelentingly dismal economic reports, this posts serves to put market movements around the globe in perspective.

After the worst January (-8.8%) on record, the Dow Jones Industrial Average closed February (-11.7%) in the third worst position, after 1933 (-15.6%) and 1920 (-12.5%). Also, the Dow’s decline marked its sixth consecutive month in the red. Bespoke pointed out that losses during this period (-38.8%) were much larger than in any of the other seven losing streaks of six months or longer.

Factoring in yesterday’s declines, the S&P 500 and Dow have now fallen to 10.9% and 7.7% below their respective 2002 lows, floundering around levels last seen in 1996. December 5, 1996 also marked Alan Greenspan’s well-known Irrational Exuberance speech. The level of the S&P 500 on that day was 43 points higher than yesterday’s closing index of 701! (Hat tip: Barry Ritholtz.)

Even more chilling is the fact that the Dow has wiped out more than half its entire gain from the July 1932 low of 41 to the October 2007 peak of 14,164. It has taken just 16 months to lose more than half the gains accumulated over 75 years, said Michael Santoli of Barron’s.

Let’s follow the unfolding drama by means of charts for the S&P 500 Index, the MSCI EAFF Index (representing Europe, Australasia and the Far East – the main benchmark for non-US stocks) and the MSCI Emerging Markets Index.


Source: StockCharts.com


Source: StockCharts.com


Source: StockCharts.com

Zeroing in on the numbers, the performances in the table below are given in local currency terms for different measurement terms ended February 28.

Click on the image for a larger table.


From the highs of October 2007 to the end of February the MSCI World Index and the MSCI Emerging Markets Index lost 55.4% and 62.7% of their respective values. The worst performer was Ireland (-79.2%), with Venezuela (-28.2%) occupying the second last position.

Considering the year to date, the Shanghai Composite Index (+14.4%) is in the lead, but was pipped into second position by Venezuela for the month of February (+5.1% versus +4.6%).

The gains/declines mentioned above are all in local currency terms. However, converting the movements to US dollar shows a somewhat different picture for the non-dollar countries (see table below). In general, most indices show worse returns in US dollar terms as a result of the greenback’s strength. The Nikkei 225 serves as a specific example where a dollar-based investor suffered as a result of the significant weakening of the Japanese yen against the dollar. Until recently, the Russian market endured a similar fate on the back of the plunging ruble.

Click on the image for a larger table.


Where to now? As pointed out before, stock markets are still in the clutches of the bear. The chart below shows the long-term trend of the S&P 500 Index (green line) together with a simple 12-month rate of change (ROC) indicator (red line) and the RSI oscillator (brown line). Although monthly indicators are of little help when it comes to market timing, they do come in handy for defining the primary trend. An ROC line below zero depicts bear trends as experienced in 1990, 1994, 2000 to 2003, and again since December 2007. Having said that, the levels of both the ROC and RSI are massively oversold.


Source: StockCharts.com

At this juncture, short-term movements are almost impossible to predict, although the sell-off over the past few days – a capitulation in some respects – could nourish the long-awaited tradeable rally. Also, Lowry’s 90% down-days, like we experienced yesterday, are often followed by two- to seven-day bounces. But we are not yet at the point where we leave the corpse of the bear behind, although each downward move brings us closer to the eventual bottom.


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