MacroResearchBoard

Lessons from the past – March 23, 2020

The financial markets remain in disarray. An unprecedented economic collapse is underway, and investors are both extremely fearful and confused. Policymakers, belatedly, are reacting, and both monetary and fiscal policy will end up becoming open-ended to protect the economy. These actions are necessary, but will not prove sufficient to reverse the slide: today’s economic roadblock is in the medical area, and here the “solution” will take time to develop.

While the bear market is unprecedented in nature, investor behavior has followed past patterns witnessed in ugly bear markets, albeit the time frame has been compressed. In a just-published report, we examined past crises to draw lessons for today. While a near-run equity market bottom is possible as policy responses ramp up, it will take time before crushed investor confidence is rebuilt.

The report concluded that: “longer-term investors should stay cautiously positioned and only gradually nibble at stocks that can weather a further storm or quality bets that are likely to lead during the next sustained upleg“.