HQ TrustApril 8 2021

HQ Trust’s Chart of the Week: The best rally ever

2 mins read

Written by Marcel Müller, CIIA - Managing Partner and Head of Portfolio Management at HQ Trust

To view HQ Trust’s article in German, please click here to visit the article on their website.

While economists were still debating a year ago whether the recovery could be a V, W or possibly even an L, the capital markets had already made their decision: after the Corona crash, things went up in a V-shape and many indices marked new highs. Can it go on?

To show how strong the current recovery phase is, in the first step Marcel Müller compares it with the rallies of the S&P 500 after ten other major price collapses – such as the Great Depression, two oil crises, the dotcom bubble or the financial crisis. In the second step, the head of portfolio management at HQ Trust analyses whether shares are still interesting for investors.

  • “The current recovery phase is the strongest since 1927. In the roughly 250 days since the March 2020 low, the S&P 500 is currently up about 70 percent.”
  • “Most counter-movements have not even reached this level in twice the time.”
  • “Similar in strength to the current rally were only those after the financial crisis and after the Great Depression in the 1930s.”

Have share prices already recovered too much? No, says Marcel Müller. But he also sees risks:

  • “Interest rates have not yet risen to a level that would affect the relative attractiveness between bonds and equities. Therefore, equities remain the liquid investment with the highest return potential in the long run.”
  • “In the short to medium term, central banks will be keen not to allow interest rates to rise much above pre-Corona levels. “
  • “For the current year, we expect a recovery in depressed corporate earnings in industries hit hard by the lockdowns, which will lead to a slight reduction in the very high valuation levels of equities. “
  • “The expected moderate increase in inflation should not lead to strong setbacks on the markets, as the central banks have already announced that they will tolerate somewhat higher inflation figures. Their continued very expansionary policies will continue to boost asset price inflation.”
  • “Despite the expected economic recovery, setbacks in the fight against the pandemic could again lead to temporary price declines in the coming months. The biggest risk to economic recovery remains the spread of new virus variants against which current vaccines are ineffective. “