04 April 2021
Source: Bloomberg & Momentum Global Investment Management
What this chart shows Last week marked the one-year anniversary of the equity market bottom on 23rd March 2020. We thought this week presented a timely opportunity to recap how far we have come since then. The chart shows the equity market recoveries over the one year period following five historic major market falls in the post-war era. The bottom left (day 0) represents the market bottom, or trough, in each episode.
All returns are based on the S&P 500 (US equity) index. Over the past year the index has returned nearly 80% (in US dollar terms), ahead of the return experienced in the immediate aftermath of the 2008/09 crisis. In the year following Black Monday in 1987, it returned 29% and recoveries from other crises including the Dotcom bubble in the early 2000s and European sovereign debt crisis (and US credit rating downgrade) in 2011 were also far more muted in comparison.
Why this chart is relevant
The swift rebound of equity markets over the past year has been helped by the huge stimulus from central banks and governments. The huge equity market returns (admittedly the US is much further ahead than developed market peers) mask a lot of the economic damage sustained (and that might be further sustained) as many economies continue to operate under lock downs.
Consequently, some markets look more expensive today, particularly the stocks which have benefited from the pandemic, such as big technology names. At the same time as some countries are easing restrictions, others are entering the third stage of the pandemic, notably in parts of Europe. Vaccine rollouts continue to bring hope, although some countries’ programmes are evidently working more efficiently than others. The pick-up in economic activity will provide a tailwind for markets though selectivity is important with some areas more expensive now after a stellar run.
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