EC Is Today’s Bull Market Sustainable?

U.S. and global equity markets are up 92% and 81%, respectively, from their March 23, 2020, lows through May 31, 2021.1 The transition from pandemic uncertainty toward reopening optimism was swift. Global policymakers’ historic stimulus, coupled with the unprecedented speed at which viable vaccines came to market, boosted the outlook and supported market optimism—and, in turn, equity prices. The flip side, however, is that share prices are no longer universally appealing. This has sparked a key question among investors: Is this bull market sustainable?

From bear to bull in 128 days: The stock market’s astonishing recovery

Before we address that question, it is worth providing historical context to the current equity rebound. Historically, the number of days it takes for the price index to recover to the level at which the drawdown commenced, which we colloquially refer to here as a U-trip, is about 380 days, as illustrated in the chart below. That's the average, while specific bear markets have taken much longer. For instance, the U-trip took about 1,400 days during the 2008-09 Global Financial Crisis (GFC) bear market, while it took an even longer 1,800 days during the dot-com bust of the early 2000s. While the pandemic drawdown last year was not as severe as those examples, it was meaningful nonetheless, with the S&P 500 sinking 34% from peak to trough. What's remarkable, however, was the speed of the recovery. Last year's pandemic crisis U-trip took just 128 days—significantly less than the long-term average, despite a once-in-a-generation healthcare crisis.

(Click on image to enlarge)

Source: Refinitiv DataStream, Russell Investments. Data as of May 31, 2021. Analysis based on S&P 500 Composite price index. “U-trip” represents the number of days it took for the S&P 500 Index to return to its high prior to the drawdown. 

 The equity market is the ultimate leading indicator, and fundamentals have underpinned the rally. Market enthusiasm reflected the torrid pace with which the global economy and corporate earnings have been recovering—both at above-trend levels.

The global economic rebound: An uneven recovery

Let's start with the global economy. As the chart shows, gross domestic product (GDP) growth bottomed for most regions in the second quarter of 2020; however, the downturn's severity varied across regions. Areas where the virus was most challenging and(or) required restrictive lockdowns experienced the sharpest contractions, such as the UK and the eurozone. However, for many Asian nations, the pandemic pressures were less intense and, as such, many endured a shallower recession, including several emerging markets (EM) countries, as well as Japan. Importantly, as the global recovery commenced, the virus was often the critical determinant of the recovery speed—with the additional waves of the virus that spread across Europe stalling the region’s recovery.

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These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions ...

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