David Hernandez, CFA
This month marked the somber one-year anniversary of the World Health Organization declaring COVID-19 a global pandemic. In addition to the immeasurable human suffering the disease has caused, the toll on both the financial markets and broader economy has also proven historic in magnitude. After the unprecedented market volatility in March 2020, two questions on many investors’ minds were if a market bottom had been reached and if a recession was underway. The S&P 500 hit an all-time high on February 19th, 2020, and subsequently experienced a fast and furious COVID-induced sell-off resulting in its March 23rd bear market trough. Although at that time, investors could not be certain this was the bottom as economic uncertainty remained high while the pandemic was still in its early stages. To help reason through the two questions noted above, we wrote “Signs of a Market Bottom?” which analyzed four broad categories in an attempt to identify markers of a trough: Technical Data, Valuation Data, Economic Indicators, and COVID-19 Data. This information was examined in the context of bear markets that coincided with recessions, which is an important distinction because one can exist without the other. Our analysis indicated that all but valuation data were useful in identifying a market trough.
Given that it has been over a year since the rapid peak–trough-bull market start, the purpose of this paper is to revisit the four aforementioned categories to see which, in hindsight, were relevant in identifying the 2020 market bottom.
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