Throughout history, major economic crises usually have a ‘Black Monday’. The Great Depression and the Global Financial Crisis each had one.
The famous one in 1987 saw the Dow Jones experience its biggest one-day percentage fall in history. In March though, world markets had two Black Mondays. On March 9, the Dow lost more than 2,000 points while exactly one week later, it lost almost 3,000 points.
It has come as somewhat of a relief therefore that April was one of the best months in years for the global stock market, as stimulus measures from both governments and central banks, and the growing optimism around a Covid-19 vaccine, brought back investors confidence.
The ‘Fearless Girl’ statue outside the New York Stock Exchange wears a face mask. American markets had a bumper performance last month.
According to the FTSE All-World Index, which measures the performance of thousands of companies around the world, global stocks grew at their highest monthly level in nine years.
The FTSE 100 had its second-best April in the last ten years. There were considerable rebounds in stock markets across Eastern Europe and the Asia Pacific region.
And Latin American markets came back from a terrible 34.6 per cent plunge in March to a six per cent jump in April.
But it was in America where the bounce was most vigorous. The Dow Jones had its biggest lift-off since June 2000, while the S&P 500 climbed 12.7 per cent, its largest monthly increase since January 1987, and its third-largest since World War II.
AJ Bell investment director Russ Mould says there are four main reasons why the US recovery was so substantial.
‘The US authorities seem keen to end the lockdown pretty quickly and get America back to work as best they can,’ he wrote.
Consequently, the government introduced stimulus measures worth the equivalent of about 20 per cent of GDP to try and prompt a recovery. The Federal Reserve cut interest rates and unleashed a vast amount of quantitative easing on the economy.
World stock markets ‘monthly change in local currency terms since the start of last year.
How the FTSE 100 index has performed over the last three months.
The jolt this created led many investors, as the resulting market recovery took hold, to jump in. You could call this a herd mentality, or in contemporary parlance, ‘Fomo’ – fear of missing out, in this case on a stock market boom.
Some analysts are also predicting that a V-shaped recovery in corporate profits will start around the second half of the year.
Finally, a considerable portion of the S&P 500 index’s gains is derived from technology stocks, which are doing fantastically well in this challenging environment.
People have been snapping up new apps they may have never, or only sparingly, used before the coronavirus hit us.
Online orders and deliveries have come into their own, creating in some cases supply bottlenecks and backlogs.
The office meeting is now the Zoom meeting (the video conferencing firm’s stock has itself doubled this year).
A glance at the top 100 performing Nasdaq stocks last month shows a proliferation of tech firms. Microchip Technology Inc, PayPal, Amazon, and Align Technology, which makes medical devices, are all in the top fifteen.
Technology stocks have tended to avoid going into the red because of the coronavirus
How the FTSE 100 index has performed over the last decade.
‘Technology firms have been huge beneficiaries of the lockdown, as companies and people turn to digital services to carry on working and living their lives,’ says Adrian Lowcock, the head of personal investing at Willis Owen.
Lowcock also points out that investors have moved to a more traditionally safe investment in this perilous economic time – gold. Eight of the top ten best-performing funds in April were either precious metals or gold portfolios.
This rush to gold may actually show that investors are more cautious about theimproved recovery than the numbers might suggest. In the UK, sentiment has , but the Footsie uplift was weaker than for the US indices.
Unlike the US stock market which is awash with tech giants, the FTSE 100 is heavily reliant on services, commodity and oil firms, which have behaved quite poorly this year.
Shell and BP have been two bad-performing stocks on the FTSE 100 in recent months
Oil supermajors such as BP and Royal Dutch Shell have had a gruelling few months, with demand for petroleum plummeting and an oversupply of oil driving prices to prices that would have recently been unthinkable.
Richard Hunter of Interactive Investor, says the UK has that Britain has ‘regained its unwanted position as one of the world market’s largest regional ‘underweights’ because of the coronavirus’.
Added to the uncertainty over the country’s future trading relationship with the European Union, ‘when the shutters were all but brought down on the global economy, matters worsened’.
These are how the stock markets of the UK and USA have performed in the first four months of 2020 compared to the same month last year
The government has said that Britain will not extend the deadline for agreeing on a possible trade deal. If this happens and no deal can be negotiated, then any possible further gains stemming from the market’s promising April could be wiped out.
With the near-exception of the Nasdaq, stock markets in the UK and the US are still down compared to where they were at the start of 2020. And it is hard to say where they will be when 2021 kicks off.
Not least because the effects of the current crisis on the real economy and public finances are impossible yet to define clearly. The stock market can pre-empt the real economy by pricing in recovery from bad times – but only when it knows the extent of the bad times and the shape of the recovery.
‘The truth is that no-one knows what is going to happen next,’ remarks Russ Mould. ‘The markets have swung from utter despair to greed very quickly, when perhaps the real state of affairs lies somewhere between the two.’
So whether the markets get better or worse, this is the wrong time for investors to be complacent. Because the most valuable commodities for them during this crisis may not be the value of their stocks, but perspective and humility.