By Zhang Liping, Research Institute of Finance, DRC

Research Report, No. 83, 2020 (Total 5827) 2020-4-21

Abstract: Four circuit breakers were triggered in U.S. stock market in March, 2020. Whether this round of violent shocks in the U.S. stock market would bring about another crash and great depression just like the one in 1929, or would stabilize soon like the situation in 1987, it will have a direct impact on the general stability of the whole international financial market and the world economy. This calls for an in-depth analysis. On the basis of the comparison between the stock market crashes in 1929 and 1987 and consideration on the particularity of the novel coronavirus pneumonia epidemic, this paper holds the view that the U.S. stock market will not stabilize in a short run during the epidemic, and the possibility of a great depression might rise with the duration of the epidemic. Constrained by the strength and capability of government policies, great depression might first strike some countries with low level of economic development. To deal with that, concerted efforts of all countries are needed to proactively respond to the problem, which include strengthening the international cooperation in developing vaccines and specific-effect medicines, promoting the commodity price stability, returning to the track of globalization, and implementing the latest G20 statement, so as to reduce the risk of a global depression.

Keywords: novel coronavirus pneumonia epidemic, the U.S. stock market, stock market crash, great depression