The COVID-19 Market Drawdown Really Is Different – Why Investors Should Avoid Sudden Moves
The speed and breadth of the COVID-19 market drawdown is unlike any we’ve faced before.
When confronting extraordinary uncertainty, some investors may be understandably tempted to respond by making sudden changes – but pervasive uncertainty argues against rash decision making.
As the COVID-19 crisis has taken hold, global equities as represented by the MSCI World Index have lost around 30%1 amid extreme volatility. Given the scale of the exogenous shock represented by this disease, the level of the equity market drawdown is not a surprise, but the velocity and breadth of it certainly have been.
Some investors may understandably find it tempting to meet unprecedented circumstances with unplanned, reactive responses. Ultimately, however, we believe this unprecedented set of circumstances gives rise to an exceptionally strong argument for sticking with established investment discipline, rather than deviating from it.
A drawdown of unprecedented velocity
The speed of this drawdown is like nothing we’ve have faced before. During the Tech Bubble drawdown, MSCI World took 241 days – approximately eight months – to lose more than 30%. It took over five months (166 days) for MSCI World to fall more than 30% during the Global Financial Crisis. In the COVID-19 crisis, MSCI World has plummeted more than 30% in only 25 days – and as of this writing, it’s far from clear that it’s reached its bottom (see Figure 1).