Every tunnel has an exit — why is the stock rebound in the recession? Comparison with Lehman Shock

This article is “Top 3 minutes” of “Tousil” provided by Rakuten Securities. It is a reprint from today’s investment strategy.

Today’s Point

Find hope in “There is always an exit in any tunnel”
Even though the recession, stock prices are half-priced. The Fed’s expansion of quantitative easing is the main cause
“Tunnel exit” found in hopes of accelerating vaccine development

I would like to introduce the views of Mr. Mutsumi Kagawa, chief global strategist at Rakuten Securities Economic Research Institute.

Find hope in “There is always an exit in any tunnel”

As the global economy deteriorated due to travel restrictions in response to the Corona crisis, prime minister Abe and major business executives commented that the recession was beyond the Lehman shock. Indeed, Japan’s real GDP growth rate is expected to be the largest recession since the year-on-year rate of growth, followed by the year-on-year growth rate of 1%, the year-on-year rate of growth, the year-on-year growth rate, the year-on-year rate of growth, the year-on-year growth rate, and the year-on-year growth rate of the year, followed by the year-on-year growth rate of the year, followed by the results of the year, and the average market forecast for the second quarter, followed by the year-on-year annual rate of 1.2%.

However, both U.S. and U.S. stocks remained high in the recession since they bottomed out in late January. Even in May, the economy was firm lyin the hope of recovery in the second half of the year due to the easing of movement restrictions. The 500 index remained at a 10-week high this week on The 20th. Rikako Ikee, who is aiming to revive swimming competitions after surviving her first illness and treatment last year, said, “There is always an exit in any tunnel.” In fact, there is a saying in the U.S. market that there is no bear market that does not end.

Chart 1 shows u.S. stocks and the “fear index” (investor slower-than-expected rate of change) over the past 30 years. As in the 2008 Lehman shock, the fear index soared to more than 80 this time on March 16. However, stock prices bottomed out on March 23, which could be said to be in the midst of a tunnel recession, and the fear index has been on a downward trend (most recently 28).

If you invested in the S&P 500 index at the time of the “fear index” exceeding 40 in that period, the average return up to the year after that was more than three times the average return of +28.9 and the average return since 1990 (+9.0%).

<図表1> market is born in pessimism and grows up in skepticism (market adage)

•Fear Index = CBOE SPX Volatility Index
Source: Bloomberg to Create Rakuten Securities Economic Research Institute (Early 1990 – May 20, 2020)