It has been bad. And it is probably not over.


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This article was correct at the time of publishing however the information contained within it will no longer be current. It may also no longer reflect our views on this topic.


The speed of the equity market correction as a result of Coronavirus has been extraordinary. To put some numbers to this, the US S&P fell 34%, the equity fear gauge (VIX) jumped to 82, which is nearly twice the previous high which was recorded during the credit crunch, and corporate credit spreads have ballooned, although they are not as wide as during the last crisis yet.

Corporate behaviours have also changed markedly. Many have drawn down hard on their credit lines, withdrawn outlook statements, postponed earnings releases and cancelled dividend payments. Financial markets and the corporate world seem to be in panic mode. As a result, a global economic recession now seems all but inevitable.

The equity market drawdown (the peak to trough correction) this year has been on a par with some of the worst recessions in living memory. Through the last recession and the one before that, nearly twenty years ago, the US equity market fell roughly 50% on this measure. At the worst point last week, the equity market had adjusted 34% peak to trough.

US S&P 500 Equity Market Drawdown %

Source: Bloomberg, Rowan Dartington Research

Index / Percentage Growth (%) 31/12/18-31/12/19 31/12/17-31/12/18 31/12/16-31/12/17 31/12/15-31/12/16 31/12/14-31/12/15
S&P 500 TR in US 31.49 -4.38 21.83 11.96 1.38

Source: FEAnalytics 2020

Is there any good news amongst the maelstrom?

While a global recession now seems all but inevitable, equity markets appear to have priced for much of that already. That is not to say that this crisis is over, far from it, but we believe we are now moving into the next phase for asset markets. That is, the phase where the balance of risks are likely towards the upside.



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