[Chart] How the 2008 Stock Market Crash Compares to Today's COVID-19 Crisis

Investors quickly realized their worst fears may be coming to fruition last Thursday as the Dow plunged 10%.

It was the worst day since Black Monday in 1987. And it has investors around the world comparing the situation to the last bear market, following the 2008 stock market crash.

The coronavirus crisis is a "black swan" event that could put the United States into another recession... and possibly even another depression.

As the number of confirmed coronavirus cases around the globe swelled, it sent investors scrambling for the exit doors.

Nothing is safe during "global risk-off" events. During extreme times of panic, cash is king.

Not even gold (down 3.5% yesterday) was safe. You see, gold typically decouples and becomes inversely correlated during periods of stress. Historically, it's a great long-term hedge, but in times like this, it can drop significantly in the short term too.

For perspective, take a look at what happened from the market tops in October 2007 to the depths of March 2009. In that time, the S&P 500 dropped like a rock - down 56.1%.

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So, what happens to stocks over the next 18 months is the big question on investors' minds.

Are we in the early stages of another recession?

This chart might have the answer...

This Chart Proves We Could Be at the Beginning of Another Recession

The chart below details what happened from 2005 to 2010. And we can use it to draw parallels to today and figure out where things could be headed going forward...

 

On March 3, 2020, the U.S. Federal Reserve met to slash interest rate by 0.50%. This was an emergency reaction to markets as they initially began falling.

And it should have been an early warning sign to investors that things were about to get worse...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

As you can see, stocks continued falling after the emergency 0.75% Fed rate cut in the chart above.

Last week, as markets continued falling, U.S. President Donald Trump floated the idea of a payroll tax cut. And you can also see that stocks fell after former U.S. President George Bush did the same in 2008.

It's clear that the Fed is going to do everything in its power to keep stocks afloat. But it may not be enough...

Not even a $1.5 trillion stimulus package announced by the Fed was enough to keep things from getting worse on Thursday.

Stocks initially bounced off the news, only to continue falling for the rest of the trading day - ultimately closing at session lows.

Investors are seriously starting to question whether the market can hold up no matter how much stimulus the Fed pumps in.

On Sunday, the Fed enacted another emergency interest rate cut. This time, it lowered rates to 0%.

The Fed also launched a massive $700 billion quantitative easing program that entails purchasing Treasuries and mortgage-backed securities.

This additional stimulus was not enough to cause markets to calm down, however. Stocks dropped another 10% on the news, initiating another circuit breaker in the first couple seconds of trading today.

In our opinion, things are likely to get worse before they get better.

Especially as the number of coronavirus cases increases as more tests are conducted around the world.

But fortunately, there are ways to protect your portfolio in the meantime...

What to Do Now

The most important thing you can do is remain calm and follow a disciplined investing approach.

Have a plan and don't panic-sell.

Make sure you have three to six months of living expenses saved up just in case you're in a cash crunch.

The next step is to take action to protect your portfolio. Fortunately, the team at Money Morning has released a comprehensive guide on how to fully protect your portfolio, including what stocks to sell, how to hedge yourself, and what investments to make. You can get it all here, completely free...

At some point, fears of the coronavirus will subside.

The market might be 50% lower at that point. But if you're able build up a decent cash reserve, you can use that money to invest for the long term.

Action to Take: Build a cash reserve of at least six months of living expenses. Diversify your portfolio with hedges like precious metals. Use your cash reserve to buy stocks if and when the market is down 50% to 60%.

Take Action: Market volatility has everyone on edge, but we have three steps you can take to protect your money and even set yourself up to profit. Click here...

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