COVID-19 and Sector Performance: Lessons from Past Crises
Global equity markets faltered in March but have recovered most of their losses since. In spite of this, institutional investors remain doubtful about the strength and the durability of the rally and have so far shown a lack of conviction.
The scepticism had already started at the beginning of the year when investors questioned where in the business cycle the global economy was. A variety of other factors exacerbated the scepticism, including the trade dispute between the US and China, the uncertainty over the upcoming US elections and the COVID-19 pandemic. For this reason, investors mostly stayed on the sidelines, which explains why the State Street Global Markets proprietary indicator shows that investor allocation to cash has remained at remarkably high levels.
All bear markets have different catalysts and no two crises are ever the same. Nevertheless, it is worthwhile to examine whether any lessons can be drawn from previous crises to inform the trajectory of the present (see Figure 1). To do this, we examined the four worst equity bear markets and performance turning points (peaks and troughs) and identified both the outperformers and underperformers, from the perspective of both performance and fundamentals.