Monthly Brief June 2020 – Market Tracking 2009?


Following the sharp, two-month rebound from the depths of the March decline, June saw U.S. equity markets peak early before pausing through month-end.  To date, the US markets have led the rebound but June saw improved participation from global markets with, in particular, the MSCI Emerging Markets Index gaining over 7% during the month.  

This broadening participation is a positive sign, suggesting that indications of economic improvement are showing up in data across the globe (although, in many cases, it is data that is still “less bad”).  And, this improving economic optimism that the worst is behind us has certainly been a significant driver of the markets’ attempt at recovery, yet confidence in the recovery’s follow-through remains fragile. 

While the sharp March sell-off was primarily driven by pandemic-related economic concerns, it was also heavily influenced by disruption in the smooth functioning of the markets themselves.  Globally, central banks have acted decisively to address the markets’ operational capabilities.  While the creativity of some policy solutions has been questioned, the need for properly functioning markets is critical during these times.

The June pause in the U.S. markets suggests that we are now entering the next chapter of recovery efforts.  The risk of capital markets seizing up again looks, for the time being, to have been decisively addressed by global central banks.  But now, economic optimism needs to follow-through and employment and earnings data will be key signposts of whether the optimism of recovery has been well founded.

CHART OF INTEREST – Market Tracking 2009?

“History doesn’t repeat itself, but it often rhymes” Mark Twain

Markets and economies rarely repeat themselves, but similarities do occur.  And similarities certainly exist in this chart comparing current market activity to the performance of the S&P 500 Index during 2009-2010.  The two periods align with their respective lows of each cycle, scaled to 100, and show the rebound following the established lows.

While its tempting to extrapolate a continuation of the current market’s path along that of 2009, it is far from guaranteed.  But it is useful is to examine if underlying fundamental factors or conditions exist which, if shared by the two periods, could support a further continuation of the similar experience.  

Today’s social and economic catalysts are much different than those of 2009.  A complicated chain of unexpected events in 2008 and 2009 resulted in a housing crisis spreading to a broader financial system crisis.  Likewise, 2020 has been hit by the unexpected, an unpresented pandemic that has swiftly crippled the global economy, while still lacking clear visibility of a solution.

Why would markets react similarly during a period defined by such different catalysts?  There is a common element that ties the reversal of the 2009 bottom with what has, to-date, been the bottom in 2020: fiscal and monetary stimulus.  In each of these periods, despite the differing catalysts, governments and global central banks stepped in to “cushion” the impact on asset prices through a variety of conventional and unconventional strategies.  Will this continue?  What are the long-term repercussions?  These questions loom large in the marketplace.  But, to date, when fiscal or monetary authorities act, markets have responded as investors believe the authorities “have their backs”. 

James Ferrin, CFA
Chief Investment Officer

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