David Hernandez, CFA
Senior Research Analyst, Non-U.S. Equities
In just a matter of weeks, U.S. equities went from all-time highs to bear market correction territory. As of March 20th, the S&P 500 had a drawdown of -31.9% from its February 19th high. Following the steep sell-off, equities subsequently rallied the week of March 23rd, logging weekly gains that were among their best in history. With equities having officially fallen into correction territory then subsequently appearing to show signs of stabilization and fiscal/monetary stimulus poised to (theoretically) cushion the impact of COVID-19, investors are left to wonder if the worst is over.
However, identifying market bottoms is a difficult endeavor. Every bear market is unique and this one is no different. Based on the severity of economic contraction thus far, it is likely that we are headed for — or possibly already in — a recession. Notably, though, not all bear markets coincide with a recession and not all recessions coincide with a bear market. Given that a recession is looming if not already here, we examined the last 40 years of data when bear markets coincided with recessions to see if we can identify signs of a bottom. Over the past 40 years, there were four such periods: 1973–1975, 1981–1982, 2000–2001, and 2007–2009. In the following newsletter, we review four categories of data over these time periods: technical, valuation, economic, and COVID-19 to see if we can identify consistent indicators of a market bottom.
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