It’s one of the worst on record. It’s perhaps the worst once you factor in the combined losses in stocks and bonds. Or how much was lost in value terms rather than just the percentage drop in stocks and bonds. But, however you dice the numbers of the current bear market, the figures are stark.

Bloomberg’s headline reads “S&P 500’s Worst First Half Since 1962…” while the opening sentence adjusts the figure to, “The S&P 500 suffered its worst first half since 1970.”

European stocks weren’t hit quite as bad as those in the United States – 2008 was still worse on this side of the Atlantic. Meanwhile, the UK’s FTSE 100 barely fell at all thanks to its oil stocks performing well. Not that anyone in the anti-Brexit anti-fossil fuel media is reporting this inconvenient truth…

Some bonds had their worst drop on record. And the usual safe havens like US bonds were on that list.

Most notable of all is the combination of drops. Stocks and bonds fell together – a rare phenomenon making our current crash dramatically worse. It was much harder to escape than those in the past, when bonds performed well.

Those holding a lot of bonds in their diversified portfolios were hammered alongside everyone else.

There’s plenty to say about all this. But I want to focus on what isn’t being said: what caused all this record-breaking carnage?

Did an investment bank go bust like in 2008? Have countries abandoned their currency pegs as they did in the Asian Financial Crisis of 1997? Has the internet been declared nothing more than “a passing fad” as it was by some doomsayers in 2000, when tech stocks plunged? Perhaps a recession has been declared somewhere? Or a housing bubble popped?

Nope, none of this has occurred.

Nobody has defaulted. Nobody has declared a recession. No government has gone bust. There has not been a currency crisis.  House prices haven’t crashed, People have not defaulted en masse on their mortgages.

None of the usual crisis triggers have been pulled.

All that’s really happened so far is inflation has returned and that some central banks have tightened monetary policy – a bit.

And yet, as noted, markets have posted one of their worst ever drops.

The obvious conclusion is that we’re in for a very rough time in coming months. That is because financial markets are pricing in some sort of crisis to come.

But this contrasts rather starkly with the historical tendency of markets to rally back hard after the sort of plunge we’ve seen. Historically, when US stocks drop more than 15%, good returns follow. That has been the lesson since 1946, 2008 being the exception.

Then again, Bloomberg also has a different measure:

Since 1957, in the years when the S&P 500 had a negative first half, the benchmark had a negative second half about 50% of the time, said Anu Ganti, senior director of index investment strategy at S&P Dow Jones.

I find this sort of analysis immensely annoying because it comes down to cherry picking the dates rather than measuring anything useful.

Actually, it’s a slightly different issue than “cherry picking” per se. But I don’t know what to call it. So I’ll have to explain…

It’s perfectly plausible that the current plunge is only so dramatic compared to history because it coincides so nicely with the six-month period being measured.

For example, an equivalent crash which begins in March would look boring on a “first six months of the year” analysis.

But if 1 January is your peak and 30 June is your bottom, then the coincidence of timing makes things look more dramatic when compared to history’s first six-month returns.

When the media and statistics combine to spin their webs, you get all sorts of conclusions.

Anyway, stocks began their current plunge precisely when the New Year began, making the starting point of the crash artificially high compared to similar crashes in the past. But, unless your stock buying behaviour coincides with New Year’s Eve parties for some bizarre reason, the analysis simply doesn’t reveal much.

To be clear, I do not recommend short selling the S&P 500 on New Year’s Eve.

Anyway, the absence of an obvious cause or trigger for the crash is revealing. Because, if nothing much actually happens, then stocks could rally back powerfully. And if there is some sort of crisis yet to really kick off, then stocks could fall much further still as that crisis takes shape. That was the lesson of the 2008 crisis.

As Rob Marstrand and Nigel Farage recently dedicated their UK Independent Wealth newsletter to, there’s no shortage of potential crises to that can be triggered. (More from Rob will come tomorrow.)

But perhaps the specific crisis trigger isn’t the message which the stock market is sending. Perhaps the underlying issue is the absence of an implicit bailout.

For many years, I told readers and listeners that they should imagine what the 2008 crisis would’ve been like if Lehman Brothers hadn’t been allowed to fail. Because that’s what future crises would look like. Central banks and politicians weren’t going to make that mistake again…

At least, they see it as a mistake, but let’s not pick that battle today.

2022 may promise to be like 2008 in the lack of a bailout. Because, this time, inflation is raging. That makes it hard for central banks and politicians to take much action.

This implies that, as in 2008, another leg down in the stock market is possible despite the crash we’ve seen so far. And this risk of lack of a bailout is what the market is worried about, leading it to crash now, despite the lack of an identifiable cause.

Whatever does go wrong will be more like 2008 than the crises we dodged with central bank bailouts in the past.

That is unless, of course, central banks decide to prioritise preventing a crisis over causing inflation.

In fact, that’s what I expect to occur in the end. But we may be in for another round of crises first.

Nick Hubble
Editor, Fortune & Freedom