Chart of the week: Equity market recovery

The recovery in the Australian equity market from the lows in March has left some investors perplexed. How can equity markets be rising when the real economy has sustained so much damage? The answer, of course, is found in the unprecedented monetary and fiscal stimulus that has deployed since the crisis took hold, and coupled with ultra-low interest rates, has acted as a powerful technical driver of prices for risk assets like equities. Looking back to some of the most violent sell-offs in Australian equity market history - 1987 and 2009 - shows that the rally seen in the equity market in 2020 surpasses both episodes in strength and speed.

Going forward, this is a pivotal time for investors. After a 35% rally off the low, the question remains how damaging Covid-19 has been to the economy, businesses, and labour markets. After such a rapid recovery, the strength of the market rebound from the Covid-19 crash in the second quarter of 2020 will be hard to match in the third.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

Prior to making an investment decision, retail investors should seek advice from their financial adviser. This document is intended as general information only. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements ("PDS") for the fund(s) mentioned in this document before making any decision about whether to acquire the product. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad-based economic or political conditions which should not be construed as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity's funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. References to ($) are in Australian dollars unless stated otherwise. Details of Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website.

© 2020 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

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