And We’re Back (to All-Time Highs)
Author: Kevin McCreadie
August 27, 2020
Global equity markets have fully recovered from the bear market collapse earlier this year and now seem poised to climb even higher as the economy continues to regain its footing. AGF’s CEO and Chief Investment Officer highlights one of the most remarkable rebounds in recent memory and what it will take to keep it going.
The S&P 500 Index is trading at an all-time high again. Are you surprised that it and other global stock indexes have already recovered from the crisis created by the COVID-19 pandemic?
It’s highly unusual for equity markets to bounce back from a bear market this quickly. Following past corrections of 20% or more, for instance, it’s taken the S&P 500 more than 60 months on average to recover from the bottom of the market with the longest recovery period being almost 300 months (or 25 years) following the 1929 Crash that preceded the Great Depression. But if you look closely at some of the same research around bear market recoveries, it’s interesting to note that bear markets of shorter duration tend to be followed by swifter recoveries and that’s obviously been the case this time around as well. So, while it’s remarkable how stock indexes sold off in record time during the late winter only to rebound in record time over the past five months, it’s not entirely surprising nor is it without reason that markets are hitting all-time highs again—especially when considering some of the unique aspects of the current crisis.
All market crises forge an identity of their own. With everything that has transpired this year, what stands out to you most as an investor?
Without question, it’s the pandemic itself. Very few people have experienced anything quite like it and the fear and uncertainty that it has created, particularly in the early days of the outbreak, is unparalleled when compared to other events in recent history that have led to market collapse and economic recession. But what has defined this crisis just as much was the decision by governments around the world to shut down their economies and, in effect, force the global economy into recession. If anything, this was the Black Swan event that caught investors off guard, not the pandemic, which had long ago been identified as a possibility. Of course, there will be other aspects of the past few months that will be talked about for years as well. This includes the unprecedented stimulus measures of governments and central banks at the beginning of the lockdown. The size and speed at which these measures were enacted was the primary reason why the selloff in stocks was so short-lived and subsequent rally so accelerated, and it’s likely to be the model for how future crises are handled. And then there’s the tremendous bifurcation of the market that has resulted in a handful of growth-oriented technology stocks vastly outperforming almost everything else in the broader index because of the outsized role some of these companies have played in helping people adapt to the current environment. In fact, the NYSE FANG + Index of 10 global tech giants is up more than 60% year-to-date, while the S&P 500 is up just a little over 5%, according to Bloomberg, with nearly 60% of the stocks within the index negative on the year. That won’t be easily forgotten by investors even when the crisis is all said and done.
What should investors expect of the market now that major stock indexes have fully recovered?
It’s important to remember that we’re not out of the woods yet. Even though equity markets are at all-time highs again, the economy is still not back to full strength and the pandemic is likely to remain a serious threat to future growth until such time that a vaccine (or vaccines) is approved and can be safely administered across populations around the world. Efforts on this front are encouraging, but much of the progress to date may already be priced in and any significant gains from here are likely dependent on an official approval, not just the growing promise of one. That said, investors can still expect markets to grind higher from here as long as the economic restart doesn’t suffer a major setback due to a surge in the virus as schools and universities reopen and more government stimulus starts to flow. This is especially true of the U.S. economy. While markets have been relatively unfazed by the political gridlock that is holding up the country’s next aid package from being rolled out, this patience will eventually run out if a deal isn’t reached soon. Similarly, with less than 100 days to the U.S. presidential election, a tightening race and prospect of a contested election will weigh on markets as we head into the fall.
Kevin McCreadie is Chief Executive Officer and Chief Investment Officer at AGF Management Ltd. He is a regular contributor to AGF Perspectives.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
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