Historic decline in US equity markets – Update from the Investment Division

What has occurred since yesterday (17.3.2020)?

Yesterday´s update started with the advantages of the Bloomberg terminals and also today we used the huge data base. Yesterday we reported on the ten days where the American equity index S&P500 had its largest losses on the same day. These ten days occurred in six different years: 1929, 1931, 1937, 1987, 2008 und 2020.

If anyone would have invested in the S&P500 at that time (including the days with the highest losses) and stayed invested for ten years, there would have been a decent long-term profit. Only if anyone would have invested in 1929 and 1931 and stayed invested for ten years, the profit would be small or there was even a loss. What we do not want to say by that example is that right now from a tactical perspective is the best time to invest. We got a bit more cautious over the last days. Despite that of course the long-term valuation of equity over the last weeks has increased.

Back to today: The equity markets could achieve clear gains. The S&P500 closed 6% in plus. Also the European equity markets gained by ca. 3%. That was caused by the announcement of further fiscal- and monetary measures:

• The US government announced ca. USD 1.200 billion to support the economy and to avoid a sharp increase in unemployment. Additonal direct money transfers to consumers are possible. Support for small and medium enterprices and tax cuts.
• The British government announced also a support package. It includes support for mortgage loans, support for airlines and retail sales.
• The US Fed announced that it will buy directly commercial papers from industrial companies to avoid a liquidity crisis in that market.

Furthermore we assume that additional measures will be announced in the future.

Another positive for the market was the good performance of Joe Biden (a moderate Democrat) in the primary elections held yesterday in Arizona, Florida, and Illinois.

What have we been doing with our funds in the past few days and weeks?

In our bond funds, we have built up the cash positions in order to be slightly more defensively positioned. Furthermore, we reduced the interest rate sensitivity of our funds quite some time ago. This has helped us in the last few days with the rise in government bond yields.

Our dossier on coronavirus with analyses: https://blog.en.erste-am.com/dossier/coronavirus/

^{Legal note:
Prognoses are no reliable indicator for future performance.}

 

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