Since the crash ten years ago, stock markets the world over have been steadily recovering. The Dow Jones, a bellwether index, has enjoyed double-digit growth in five of the past ten years and soared by 25 per cent last year — credit for which, inevitably, has been claimed by Donald Trump. ‘The reason our stock market is so successful is because of me,’ he said on board Air Force One a few weeks ago. ‘I’ve always been great with money.’
We should not expect him to repeat this point any time soon. Earlier this week, the Dow suffered its worst fall in six years, losing 4.6 per cent in a single day and triggering a sell-off around the world. It went on to recover, but the loss — it was down by 1,175 points at one point, the largest drop in its history — was a lesson for everyone. Something fairly important has changed: the days of surefire gains are probably over. The benign financial environment of recent years has gone. The VIX index, a measure of market volatility, on Monday registered its biggest daily spike on record. There have been periods during this sell-off when shares, government bonds and gold have dropped simultaneously, signifying indiscriminate, across-the-board liquidation.
But this was not really a crash: markets worldwide are still far higher than they were two months ago. The dip on Tuesday was as nothing compared with Black Monday in 1987, when the Dow lost a quarter of its value in a few days. And the market is not a barometer of the economy. There was no banking collapse, no terrorist-driven panic, no geopolitical disaster. This was a good old-fashioned market–driven change in valuations, after a bull run. In fact, it may well be that the world economy is finally moving on from the 2008 crisis, escaping the doldrums of its long aftermath.
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