Chart of the week: 1 Year In
One year ago this week, state after state started issuing stay-at-home orders and imposing lockdowns that effectively brought the economy almost to a halt. The busiest streets of major cities always full of life became deserted overnight, unemployment numbers started climbing fast with seemingly no limits, GDP projections were worse than the great depression of the 30s, markets went into the fastest bear market on record with the S&P 500 falling almost 33% within a few weeks, and to top it all off it seemed like there was no end in sight for the pandemic nor an effective strategy to curb it.
Yet amidst all of the negative outlook, one interesting thing happened. Markets actually bottomed out not when we found a vaccine or an end in sight, but actually days into the beginning of the lockdown period on March 23rd of last year in arguably the darkest days. From that point, the S&P 500 went on to rally more than 77% and even rallied almost 20% above the pre-pandemic highs.
Could it be due to the rescue packages through the CARES act, PPP, and added unemployment benefits? Sure.
Or, the Federal Reserve’s willingness to go to uncharted territories by buying corporate bonds and signaling that easy monetary policy will be here to stay as needed? Absolutely.
But here’s the primary reason: markets are always forward-looking and price in future expectations into the current price, by the time the news hits the tape it will already be too late to act. Case in point, last February, markets have detected the seriousness of COVID weeks before it became center stage and weeks before any government intervention and therefore started to price in the negative outlook in advance, just like by the time lockdowns were announced markets were already forward looking to and betting on the vaccine and future economic recovery.
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