By: The Quinnipiac University Economics Research Team, Jack French
This past week marked one whole year since the Covid crash began. Increased volatility started a few weeks before that, but the week of February 17th, 2020, is what we’ve considered the unofficial start of the crash and the pandemic-driven market. One year ago, we noted, “Worries over the coronavirus and the chance of it causing a substantial economic slowdown have been triggering selloffs on and off for several weeks now.” Furthermore, US long-term yields had already hit record lows at that point as investors piled into safe assets. At that point, however, there was still hope for a short-term impact. By March 6th, 2020, the crash had arrived but had not yet finished. The WIG 20 lost 12% in two weeks, but the worst was still to come. Central banks were announcing interest rate cuts, and the sentiment was that markets were overreacting. That idea quickly went away. So did the idea that the ten-year global economic outlook wouldn’t change much and that the economy could undergo a “v-shaped” recovery and be back by May. May 2020.
By March 20th, markets had dropped by as much as 20% in a week. The US entered a bear market, as did much of the world. Investors were giving up on the idea that the economy would snap back by May. At this point, we noted that “A very long term outlook would view this as a buying opportunity where investors could purchase shares of very solid firms at discount prices. However, anyone buying now has to be willing to lose money in the short term, and it’s still unclear what the duration of the short term is.”
By April 3rd, markets were beginning to rebound. That continued for a couple of months, after which the S&P continued upwards and most of CEE indices fell or flatlined. The BUX trended downwards from the beginning of June until November. Even the US was flat for months at a time. Once vaccine news improved around the same time as the US election, markets began to surge again. That period lasted through the end of the year. Now stocks have once again been moving sideways for a month or two. Interestingly, within a few weeks, the one-year returns for all CEE stock markets will soar as a function of the drastically lower baseline. One thing that is clear from the past year is that any financial or economic prediction about the long-run impacts of the pandemic has little hope of being right.
In a surprising turn of events, the UK FTSE outperformed both the US S&P 500 and the group of Central European indices. After several weeks of a strong rally, the Romanian BET fell throughout the two weeks and finished more than two percent down. The Hungarian BUX had also been pushing ahead but closed Friday slightly lower after being down as much as two percent earlier in the week. In the most recent report, the UK FTSE was dropping over a percent a week but rose nearly two percent over the last two weeks. The Czech PX had an up and down two weeks but finished slightly down. The Polish WIG 20 was two percent lower at one point but bounced back to gain about a percent and a half, the best performance of any CEE index. The Slovakian SAX trended upwards for most of the two weeks and closed just behind the WIG 20. The S&P opened the two weeks slightly higher and stayed around that level pretty much every day. Most of the indices saw a definite upwards jump around the 16th of February, though the PX and S&P stayed flat.