Equities have made a stunning recovery from the COVID-19 induced lows of March 2020. In the space of 18 months, US stocks have climbed 96% (US$) while Australian stocks have climbed 61%. The COVID-19 bear market was itself unusual in terms of seeing a peak to trough decline lasting only one month. While the recovery has been fast, this bull market is also somewhat unusual due to the lack of any meaningful correction/s a full 18 months into the new upswing.
In terms of month-to-month performance, the US market has produced three minor negative months. The largest monthly fall was September 2020 at -3.9%, while Australia has seen only one negative month (September 2020 -3.8%) since the March 2020 lows.
Similarly, meaningful peak to trough falls have been virtually non-existent so far in this recovery. Daily data reveals the largest US peak to trough correction since the March 2020 lows has been 9.6% (within September 2020), while Australia has only experienced one peak to trough fall of greater than 5% (-6 % late August to late September 2020). Even in strong bull markets, this lack of corrective action is highly unusual (albeit not unprecedented in history).
So, while a correction feels overdue and overdue in a central case statistical sense, it is not a certainty of occurring anytime soon, based on analysis of the past two bull markets. Of course, investors need to accept that corrections are part and parcel of equity investing, even in extended bull markets. We provide context to the correction risk and address the wall of worry that has been building with investors, addressing:
About Wilsons: Wilsons is a financial advisory firm focused on delivering strategic and investment advice for people with ambition – whether they be a private investor, corporate, fund manager or global institution. Its client-first, whole of firm approach allows Wilsons to partner with clients for the long-term and provide the wide range of financial and advisory services they may require throughout their financial future. Wilsons is staff-owned and has offices across Australia.
Disclaimer: This communication has been prepared by Wilsons Advisory and Stockbroking Limited (ACN 010 529 665; AFSL 238375) and/or Wilsons Corporate Finance Limited (ACN 057 547 323; AFSL 238383) (collectively “Wilsons”). It is being supplied to you solely for your information and no action should be taken on the basis of or in reliance on this communication. To the extent that any information prepared by Wilsons contains a financial product advice, it is general advice only and has been prepared by Wilsons without reference to your objectives, financial situation or needs. You should consider the appropriateness of the advice in light of your own objectives, financial situation and needs before following or relying on the advice. You should also obtain a copy of, and consider, any relevant disclosure document before making any decision to acquire or dispose of a financial product. Wilsons’ Financial Services Guide is available at wilsonsadvisory.com.au/disclosures.
All investments carry risk. Different investment strategies can carry different levels of risk, depending on the assets that make up that strategy. The value of investments and the level of returns will vary. Future returns may differ from past returns and past performance is not a reliable guide to future performance. On that basis, any advice should not be relied on to make any investment decisions without first consulting with your financial adviser. If you do not currently have an adviser, please contact us and we would be happy to connect you with a Wilsons representative.
To the extent that any specific documents or products are referred to, please also ensure that you obtain the relevant disclosure documents such as Product Disclosure Statement(s), Prospectus(es) and Investment Program(s) before considering any related investments.
Wilsons and their associates may have received and may continue to receive fees from any company or companies referred to in this communication (the “Companies”) in relation to corporate advisory, underwriting or other professional investment services. Please see relevant Wilsons’ disclosures at www.wilsonsadvisory.com.au/disclosures.
David is one of Australia’s leading investment strategists.