How markets have responded to the coronavirus

  • Explain how markets are affected by global health scares
  • Describe the best kind of stock to be invested
  • Explain how recoveries work

The argument for such a course is that lost revenue from several months’ low productivity cannot be made up quickly by resuming work: the best we can do is to recover slowly.

Of course, the amount of time matters: a “U” shape could take years to return to previous highs.

With the tech bubble crash of 2000, it took almost seven years for the S&P 500 to return to its previous high and with the GFC, it took the S&P 500 about 5.5 years to recover.

Both of these crashes exhibited year-long declines followed by longer recovery periods, as shown in Figure 2.

The tech bubble crash took about 2.5 years from peak to trough and then took a little over four years to regain the previous high.

The GFC crash was faster, with only 1.3 years from peak to trough with a similar four-year recovery.

Worst case scenario: The L-shaped recovery

Figure 3: The Great Depression took a little less than 3 years from market peak-to-trough but took over 20 years to recover.

Looking at the worst economic and market disaster for which we have data, the Great Depression, shows what a very-long recovery time scenario might look like, as shown in Figure 3.

That crash also took a short time from peak-to-trough: a little under three years. But it took far longer – over 22 years – to recover that pre-crash high.

Of course, today’s governments have far more sophisticated tools at their disposal to deliver economic stimulus.

But we are also facing unprecedented environmental challenges that have the potential to further adversely impact our economic growth and financial markets.

Scientists also tell us that warmer temperatures bring with them conditions for more novel diseases.

If that is indeed the case, we could be entering a period of sustained and periodic market disruption.

Whatever the shape of the recovery, investors should be aware that defensive stocks are the least likely to be adversely impacted as the world deals with this unprecedent threat to life and prosperity.

Damian Handzy is chief commercial officer of Style Analytics


Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Stock markets are expected to perform in the same way in the current health crisis as in previous epidemics, true or false?

  2. Why is China's role in the current outbreak different to that relating to Sars?

  3. What happens to low volatility stocks during virus outbreaks?

  4. How has the Hang Seng index performed since the virus was detected three months ago?

  5. Why is it most likely that we will get a U-Shaped recovery?

  6. Defensive stocks are least likelthe current threats to be adversely affected by the current threats to prosperity, true or false?

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  • Explain how markets are affected by global health scares
  • Describe the best kind of stock to be invested
  • Explain how recoveries work

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