GroundHog Day March 2009

If the market feels like 2009 to you then there is a good reason why. It is behaving very much as we saw in 2009. So if this continues what can we expect for the rest of 2020

Here’s a good bit of research from Nick Colas of DataTrek Research.

  1. The S&P500 rally from the March 23rd, 2020 lows VERY closely matches the moves in the same index after the lows on March 9th, 2009 (the low point of the GFC)

Take a look at these similarities:

58 days after the low of March 23rd the S&P500 is 37.1% higher.

58 days after the March 2009 low the S&P500 was 39.4% higher

Comparing the strength of the 2020 rally to the strength of the 2009 rally we find the 2020 rally got way ahead of the 2009 rally by Day 15 (April 14th). On that day the 2020 rally was up 27.2% and the 2009 rally was up 16.4%. But the 2020 rally gave up all those extra gains over the next 5 days and the two rallies came back in line.

The 2020 rally had a second go at jumping ahead of the 2009 rally when it was ahead by 13% last Monday, and you know what happened next: Thursday’s drop of 6% and other declines have closed the gap again.

Takeaway: We have seen this kind of rally before, back in 2009. If the similarities continue the rest of 2020 will be very good for stock prices

  • As close as these rallies look based on % terms, the S&P500 is priced very differently in 2020 to 2009.

On Day 58 of the 2009 rally, the S&P500 was at 943 which was 10.4X trailing peak earnings that occurred in Q2 of 2007.

On the same Day 58 of the 2020 rally the S&P500 trades at 19.6X trailing peak earnings which occurred Q2 2019

Conclusion: In 2009 investors had given up on ever seeing prior-peak earnings again. In 2020 investors are expecting companies to quickly return to prior peak earnings.

  • The big winners in each rally are very different

In 2009 the Financials were the big winners more than doubling in value from the lows to Day 58. Their performance was responsible for 35% of the total S&P500 rally.

In 2020 no sector has doubled. Tech is up the most at 41% from the March 23rd lows. Communications is up 35% and Financials +35%. All good numbers but not like the banks in 2009

Conclusion: The GFC was a financial problem so when things turned the corner that sector benefited the most. Coronavirus is a far more reaching problem. In 2009 we wondered if an ATM would have cash. Now we are wondering if touching an ATM is safe

Lastly: If the comparison to 2009 is set to continue. Then the S&P500 is set for a breather. From Day 58 in 2009, the S&P500 hardly went anywhere for 34 trading days (7weeks).

But after that, 2009 saw a further 17% rally from July into the end of the year. If history repeats that would put the S&P500 at 3588 on December 31st of 2020 for an 11.1% gain for the year.

Sounds about right to me