Stock take

BEAR MARKET: Welcome to the global bear market. Ten consecutive declines saw the MSCI all-country equity index fall by more than 20 per cent, meeting the technical definition of a bear market. South Korea’s Kospi index fell particularly quickly, declining by 22 per cent since August 1st, while European shares have also been battered – Italian shares fell by over a third from their 2011 peak while Germany’s Dax lost more than a quarter of its value.

In the US, small-cap indices are in a bear market, although the SP 500 has just avoided bear market territory. In fact, Goldman Sachs notes that the median market correction over the past 35 years reflects the current decline. Furthermore, at 97 days, “the current episode is in line with the average duration of the past corrections”.

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HISTORIC: So just another correction? No. Market volatility and the speed of the US sell-off have been historic.

The Vix, a measure of market volatility, hit 48 on Monday. Excluding the freakish all-time high of 89 recorded in 2008, Monday’s close just exceeded the very worst panics of the last two decades. The Vix doubled in three days, the first time that happened since its inception in 1990.

The percentage of stocks trading above their 50-day moving average fell to zero, as it did in 2008. The SP 500 closed more than four standard deviations below its 50-day average, Bespoke Investment Group notes. That’s even more severe than in 2008, when the index briefly traded 3.6 standard deviations below its 50-day average, and marks the fifth most oversold reading in history.

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MARKET TIDBITS:

* All 500 stocks in the SP 500 fell on Tuesday. Just 42 of the 3,085 NYSE stocks rose – the lowest percentage since 1940.

* Monday’s trading volumes were the fourth highest in history.

* Rumours of forced hedge fund selling were rife all week although retail investors were also in panic mode – retail online brokerage TD Ameritrade recorded its biggest ever trading volumes on Monday.

* Apple briefly replaced Exxon Mobil as the most valuable company in the world on Tuesday.

* US indices may be at 1998 levels but they remain overvalued, according to the Shiller price-earnings ratio, which is based on average earnings over the last decade. It’s at 19.5, above an average of 16.4 since 1871. Europe is cheaper – Société Générale’s Andrew Lapthorne estimates a Shiller PE of 12.4 for European equities.

* "Market to Fed: Drop dead", headlined Wall Street Journalblog MarketBeat after stocks plunged just after Tuesday's Federal Reserve statement. Indices went on to enjoy their best day since 2009, soaring 6 per cent over the next hour.