News: A year since Black Monday 2 and a round trip for markets.
LONDON (Reuters) – It’s been a year since COVID-19 chaos brought the S&P 500 index 12% for its second worst day ever, but the bull market that resulted from that sell-off has more in the following 12 months than $ 40 trillion contributed to the value of world stocks.
On March 16, 2020, when the S&P 500 saw its worst one-day decline since “Black Monday” in October 1987, the MSCI global stock index fell nearly 10%, only to rise again thanks to tremendous support from central banks.
The impact has affected all market sectors. Here is a look at the markets on that day and in the year since:
THE $ 65 trillion round trip
When COVID-19 spread around the world between late February and late March 2020, triggering unprecedented lockdowns, the market value of world stocks fell by $ 21 trillion. Markets bottomed out on March 23rd and hit record highs five months later.
The market cap of the MSCI Global Index rose $ 40 trillion between March 23 and now, making it a $ 65 trillion round-trip.
Graphic: $ 65 trillion round-trip ticket –
However, the new bull market has gradually evolved.
During the March-November “Hope Period”, health and technology stocks rose at the expense of financials, airlines and others hit by shrinking economies and travel bans. The two sectors now account for 42% of global stock market capitalization, compared to a third before the pandemic.
Chart: One year since worst market capitalization loss –
This created the largest price gap since the dot-com bubble of the 1990s between such “growth stocks” and the cheaper sectors whose fortunes depend on economic recovery.
Graphic: Health and Technology Make Up 42% of World Stocks –
But this year when the COVID-19 vaccinations began, value has gained ground – the TechShares have been flat since the start of the year, while the Dow Jones “old economy” index is up 7%.
On March 16, 10-year government bond yields fell. The shock came a day later when multi-asset portfolio managers struggling to offset stock losses turned to selling their most liquid asset – government bonds.
At one point on March 17, US 10-year yields rose over 20 basis points, followed by sell-offs on UK Treasuries and German Bunds. It was the moment that shook investor confidence in bonds as portfolio diversifiers.
The drama continued on March 18, when premium investors called for riskier Italian 10-year bonds to be held versus Germany, an increase of over 65 basis points from the opening level. Later that day, the ECB launched an emergency pandemic stimulus package.
It was a time of intense volatility – the average daily move between the highest and lowest Bund futures prices last March was 186 ticks, three times the February level and one of the largest moves on record according to refinitive data.
Graphic: Covid crisis triggered extraordinary volatility in bonds –
The average return on the Bloomberg Barclays Multi-Verse bond index fell more than 100 basis points between a high in March and a low in August. Since then it has risen by almost 55 basis points to its highest level in almost a year.
The $ 6.6 trillion daily forex markets saw some of the most noticeable moves as the dollar rose nearly 8% between March 9 and March 20.
Almost every other currency collapsed. While emerging market currencies were hardest hit – the Mexican peso fell 18% – self-perceived havens like the yen and Swiss franc fell 6% to 8% as dollar constraints swayed across global money markets.
The dollar’s fortunes turned on March 19 as the Fed removed the bottlenecks and removed the dollar’s interest rate advantage. By the end of the year it had fallen 13% from the March highs.
Graphic: Anatomy of a Crisis –
Reporting by Thyagaraju Adinarayan, Dhara Ranasinghe and Saikat Chatterjee; Adaptation by Sujata Rao, Larry King
Original Source © Reuters