Should we fear 2011 is the next 2008?

The national newspapers spared front-page column inches to talk of a 'Credit Crunch 2' on Friday after a global sell-off wiped trillions off the value of equities worldwide.

But do investors have anything to fear from this week's stock market movements, and has it been anything at all like 2008? IFAonline takes a look...

This week's 'crash'

Why is it happening?

Fears are growing of a new recession in the west (although analysts are keen to dismiss this week's turmoil as a correction at worst) after a global sell-off largely caused by two factors.

Firstly, in the US, the long-running political battle over the budget (which appeared to calm after a deal to raise the nation's debt ceiling was agreed) has plagued investor sentiment and led to concerns the US will lose its AAA debt rating.

All eyes will now be focusing on US jobs data due out later today as an indicator of the strength of the economy.

Secondly, in Europe, concerns over the ability of governments to pay their debts - which has already led to Greece, the Republic of Ireland and Portugal being bailed-out - has now spread to Spain and Italy.

What has the FTSE done?

As recently as 7 July, London's leading index of shares stood at over 6,000. This week, it has plummeted as low as 5,205. It is currently trading more than 2% lower at 5,264.

Global indices

Taking a look at the one-year chart, the Dow Jones has not fared badly at all. But this week the index, which had been trading at over 12,277 on Monday, has fallen by almost 1,000 points. On Thursday alone, the Dow lost more than 500 points to rest at 11,383.

Meanwhile, the S&P 500 fell yesterday to an eight-month low of 1,200, extending a nine-day retreat to 11%.

Hong Kong shares suffered their worst one-day decline since the 2008 financial crisis. The Hang Seng Index slumped 4.3% to end at 20,946 while the Shanghai Composite Index bounced off its lowest level in ten months to finish down 2.15% at 2,626.42.

Australian stocks closed at a two-year low after major miners led the local bourse's worst sell-off since early 2009.

Other indicators (Thursday figures)

Fixed income

• US two-year Treasury yields hit a record low of 0.26%.
• US 10-year Treasury yields fell to 2.42%, lowest since October 2010.

Currencies

• The dollar traded up 2.5% to 79.03 yen at current prices, the largest one day percentage gain against the Japanese yen since mid-September 2010.
• The euro suffered its biggest one day fall against the US dollar since 11 July, dropping 1.5% at $1.4110.

Commodities

• Gold prices hit a record high in intra-day trade of $1,684.90, but fell to close on Thursday at $1,651.40.
• Silver plunged 7% to $38.76, its biggest one-day percentage loss since 11 May.
• US crude for September delivery settled at $86.63 a barrel, sliding 5.8%, the biggest daily percentage loss since 5 May and the lowest close since 18 February.

The Good News

-It is fairly rare for a correction to turn into a bear market, according to a new note from Birinyi Associates:

• Since 1962, there have been 25 corrections greater than 10% during bull markets. Nine of these instances became bear markets. Historically there is a 64% probability that this is only a correction and not the start of a bear market.
• The average correction is 13.2% and lasts 118 days. If this market follows the pattern of the average 10% correction, the S&P 500 will bottom at 1,184.02 on 8/25/11.

-Wall Street has never been more sure the Standard & Poor's 500 index will rally in 2011, even after speculation the US economy is heading for a recession prompted the biggest plunge since the bull market began.

Chief strategists at 13 banks from Barclays Plc to UBS AG see the benchmark measure of American equities surging 17% through to December 31, the average estimate in a Bloomberg survey.

-Corporate health is strong for many companies across the globe according to fund managers.

Here is Jupiter CIO John Chatfeild-Roberts: "It is at difficult times like these that we have to remind ourselves that companies are generally in excellent health.

"By way of example, two-thirds of the US companies in the S&P 500 Index have now reported Q2 earnings and 73% of those have exceeded analyst expectations. That said, they are understandably making cautious outlook statements to the market."

The 2008 crash

Cause

The main cause was the sub-prime mortgage crisis in the US. In short, companies were lending to people with bad credit ratings. US banks were exposed to these loans and eventually collapsed. This was because they were lending more money than had in their own bank!

What happened to the FTSE?

The UK stock markets were also badly hit. From early September to mid October, 30% had been wiped off the value of the FTSE 100.

In September 2008, London's leading index was trading at more than 5,600. However, by mid-November it was below 3,800 and, by March the following year when the worst of the sell-off had passed, the index settled at 4,000.

Global indices

They suffered what has come to be known as 'Black Week'. Beginning on 6 October and lasting all week, the Dow Jones Industrial Average closed lower for all five sessions. The index fell more than 1,874 points, or 18%, in its worst weekly decline ever on both a point and percentage basis. The S&P 500 fell more than 20%.

Sources: Sharesexplained.com, BBC, Google Finance, reuters, Bloomberg