Equities have made a stunning recovery from the COVID-19 induced lows of March 2020. In the space of 18 months, US stocks have climbed 96% (US$) while Australian stocks have climbed 61%. The COVID-19 bear market was itself unusual in terms of seeing a peak to trough decline lasting only one month. While the recovery has been fast, this bull market is also somewhat unusual due to the lack of any meaningful correction/s a full 18 months into the new upswing.
In terms of month-to-month performance, the US market has produced three minor negative months. The largest monthly fall was September 2020 at -3.9%, while Australia has seen only one negative month (September 2020 -3.8%) since the March 2020 lows.
Similarly, meaningful peak to trough falls have been virtually non-existent so far in this recovery. Daily data reveals the largest US peak to trough correction since the March 2020 lows has been 9.6% (within September 2020), while Australia has only experienced one peak to trough fall of greater than 5% (-6 % late August to late September 2020). Even in strong bull markets, this lack of corrective action is highly unusual (albeit not unprecedented in history).
So, while a correction feels overdue and overdue in a central case statistical sense, it is not a certainty of occurring anytime soon, based on analysis of the past two bull markets. Of course, investors need to accept that corrections are part and parcel of equity investing, even in extended bull markets. We provide context to the correction risk and address the wall of worry that has been building with investors, addressing:
- Growing investor concerns
- The factors driving our still constructive 12-month view
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Written by
David Cassidy, Head of Investment Strategy
David is one of Australia’s leading investment strategists.