So here we are, one year on. As it happens, exactly one year from the day that the stock market bottomed out in the pandemic plunge last autumn.
The coincidence of those two dates demonstrates one of the remarkable features of stock markets - their ability to look through today’s headlines to what is waiting for us around the corner. Even as we were contemplating the grim reality of only leaving home for essential purposes and the almost total temporary shutdown of the economy, investors were already looking forward to better times ahead.
Getting back into the stock market last March required a contrarian spirit that few of us possess. Shares had fallen by around a third in just over a month. It had been one of the fastest bear markets in history. To have been fearful at this time was only natural.
But such was the speed of the recovery that waiting even a few weeks would have significantly reduced your returns. It turned out to be a text-book V-shaped recovery.
On March 23rd last year, 98% of the companies in the S&P 500 index were trading below their 50-day moving average. By the end of May, 94% of them were above that measure. The tide turned remarkably quickly.
The market did, however, carry on rising, if not quite as dramatically. One year after the bottom, the S&P 500 has risen by more than 70%. On an equal-weighted basis treating all companies in the index, large and smaller, the same as each other, the index has done even better.
It would be wrong to focus exclusively on the US because the scale of the stimulus there, and the weighting of the market to the kinds of companies that have been beneficiaries of the pandemic, means it has performed particularly well. The UK, for example, has risen by much less over the same period.
But this has not just been a US-focused recovery. Emerging markets and Japan have tracked Wall Street higher. Even the worst markets have had 12 months to celebrate.
So, what can we learn from the past year in the markets?
First, we remembered the wisdom of the saying that you should never fight the Fed. The firepower of the authorities is pretty much unlimited, especially if a country has the luxury of printing its own currency. The only restriction on the stimulus it can provide is the fear of inflation. A real fear, but one that can be put off until after the fire has been put out.
Second, we learned that timing the market is extraordinarily difficult. For one thing, to have the dry powder to act at the bottom of the market you would have needed to move into cash before the market fell - easier said than done. Picking the bottom is the next challenge - also much easier to do in hindsight than in real time. Having some cash to hand even, perhaps especially, when the market is riding high makes good sense.
Third, it became clear that even when markets are swinging on big-picture influences like Covid, different markets, assets, sectors and individual companies behave very differently. Just as some markets outperformed others significantly, so too did certain sectors emerge as winners and others as losers from the pandemic. The difference in performance between, let’s say, Amazon and EasyJet makes the point. Diversification has never been more important.
Fourth, we have learned that not all the rules were ripped up by the coronavirus. One of the big surprises of the past year has been the consistent outperformance of the shares of companies that score highly on environmental, social and governance (ESG) factors. These so-called sustainable companies have shown that, in bad times as well as good, their quality is understood by investors. This too shall pass, and when it does we all want to make sure we are invested in the companies that have a long-term profitable future ahead of them.