Coronavirus lockdown, one year on – how have markets reacted?

23 March 2020 – the day that life changed in the UK as we knew it. The day the UK entered its first lockdown as a measure to protect the nation from the spread of coronavirus.

You don’t need us to tell you what happened between now and then. It’s been one heck of a ride. One that we’re still firmly holding tight on.

But a year to the day exactly, and we can say with some cautious optimism that we’re on the way out. Daily cases and deaths are currently falling, children are back at a school and there’s a road map for us to follow.

As well as us mere mortals, stock markets have also experienced an unprecedented 12 months. And as an investor, it’s useful to look back at the extraordinary journey markets have experienced.

A fall like no other

Between 20 February 2020 and 23 March 2020, global markets fell by 25.7%, as investors weighed up the impact of the various worldwide lockdowns that were being implemented. It wasn’t so much the depth of the fall that stood out, more the speed with which it happened.

For example, the 1929 Wall Street Crash saw markets drop by 89%, but this took years to occur. Over a period of 34 months in fact. The more recent Global Financial Crisis of 2008 saw markets slide by 49%. But this was over more than a year, across a period of 16 months.

As for the Coronavirus Crash, this took place over the space of just a month.

In the first three months of 2020, global markets recorded their worst quarter since the 2008 Financial Crisis. UK shares in particular had a really difficult period, with the major UK market falling by more than 25% over this period.

A speedy recovery

And yet the speed of the recovery also came as a surprise.

Even before the end of April, UK markets started to show signs of a recovery – albeit numbers were still below pre-covid levels. And come the end of quarter two 2020, the US had experienced its best three months in more than 20 years.

A few months later came the positive vaccine news, and this is where the recovery really took hold.

Off the back of the news, one of the year’s worst performing markets gained double digits across November 2020 – the UK FTSE returned 12.7%. Not wanting to be left out, the US also hit record new highs. Overall by this point, global shares had gained around 12% since the beginning of 2020.

Across last year as a whole the FTSE 100 suffered its worst decline since 2008. However, UK markets had a good start to 2021, so good in fact that it was the index’s best ever start to a year.

In February global markets hit a record high, rallying for 11 days in a row – the best run they’d experienced in three years. And in March, European markets posted their best day in four months.

We could go on, but let’s say that all in all markets have recovered – and then some. Between 24 March 2020 and 12 March 2021, global markets have experienced gains of 47.1%.

An unequal rebound

There’s no doubt the rally has so far been impressive, but it has been unequal. There’s been a wide disparity in performance. When prices bottomed out in March, investors went in search of industries which could not only survive lockdown but could actually thrive – think your big tech companies, online retailers and grocers.

Whereas cyclical stocks – businesses whose performance more closely resembles the health of the economy – struggled across last year. Think of the airlines that have seen their fleets grounded for months on end, or the pubs who have had no customers to serve their beer to.

But since the emergence of vaccine news last November, there has been a slight shift. Investors have once again seen the value in these types of companies. With vaccines being rolled out across the world – more successfully in some areas than others – investors are gaining confidence that these suffering industries can begin to open up their doors again.

The road ahead

We’re far from out of the woods yet. And whilst markets have experienced an impressive recovery there’s still a lot of volatility. For example, the FTSE 100 saw a 7.3% difference between its highest and lowest points across January 2021.

As the world begins to reopen, there’s a lot going to be dependent on the recovery of the global economy. The OECD have forecast the global economy will expand by 5.5% this year and by 4% in 2022.

Unfortunately there will be a lot of businesses that aren’t able to reopen when the rest of the world finally does. And there will be more jobs lost as a consequence. Here in the UK, unemployment isn’t expected to peak until 2022.

But with the road map comes hope.

Andrew Bailey, Governor of the Bank of England, has recently predicted that the pandemic will cause less long-term economic damage than most recessions. Optimism has started to slide into homes and businesses, with confidence rebounding to levels not seen since the start of the pandemic.

There’s growing hope we’ll be doing the things we love once again, sooner than later.

As an investor…

Kieran Ellis

Perhaps the main thing to take from the story of the last year is that when it comes to your investments, it’s wise to hold tight when markets slide.

Kieran Ellis, Skipton’s Technical Research Specialist

If you’d have decided to withdraw your investments when markets bottomed in March 2020, you’d have missed out on the recovery experienced since then. More often than not, the long-term overall performance of markets is a reward for the short-term volatility we have to endure.

We’ve said it time and time again, not just this last year, as it’s a long running mantra here at Skipton. Investing is about your long-term goals and should be undertaken as a long-term commitment.

The next few months make for very interesting times ahead indeed. But our message stays more relevant than ever. Stay calm and hold tight during periods of market uncertainty. Remember, it’s about time invested not timing.”

As always, if you have any concerns about your investments please get in touch.

Important information

Past performance is not a guide to future returns. This article should not be taken as advice. We always recommend you speak to your financial adviser before making any decisions that could impact your investments.

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