The equity market returns in the first quarter of 2020 were historically low. The S&P 500 was down 19.5%. There have only been 18 quarters in which the S&P 500 has declined by 15% or more. Ten of those occurrences took place between 1929-1939. During the selloff, other safe-haven assets showed their portfolio diversification benefits as long duration Treasuries were up 21% in Q1, the U.S. dollar index was up 2.5%, and gold increased by 4.5%. While Treasury bills (a proxy for cash holdings) where only up 0.28%, they outperformed the S&P 500 by 20%. That is the highest outperformance of cash verus stocks since Q4 2008.
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The positive takeaway is that the quarters following a 15% or greater decline in the S&P 500 have been very strong. The quarter immediately following a 15% or greater decline has generated a positive return 67% of the time with a median total return of 5.8%. All of the negative returns occurred in the 1930s, except for Q1 2009. The returns over the next 2-8 quarters have been positive 100% of the time post 1945 with median gains of 10.5% two quarters out, and 45% eight quarters out. This data would suggest that unless the U.S. economy is entering a multi-year depression like era, equity returns in in 2021 are likely going to be above average.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Vice President, Investment Strategy
Boyd Watterson Asset Management, LLC