Four years on

Four years ago, the unthinkable happened. The World Health Organisation declared Covid-19 to be a global pandemic on 11 March 2020, and over the subsequent days, many countries-imposed lockdowns, including South Africa.

Equity markets went into freefall and the mad dash for cash ensued saw traditionally safe-haven US Treasury prices fall (though briefly). Remarkably, by 17 March, Moderna commenced the first human trials on its mRNA vaccine. By November of that year, positive results were announced, while Pfizer and BioNTech also announced successful trials of their jointly produced vaccine. An estimated seven million people have so far lost their lives due to Covid – an immense tragedy – but the vaccines eventually saved many millions more and enabled a gradual return to normal.

Equity markets bottomed on 23 March 2020 with the announcement of a massive intervention by the US Federal Reserve that would effectively backstop the entire financial system. It also slashed interest rates down to zero. On 25 March, the US signed the CARES Act into law, injecting $2.2 trillion into the US economy. Other governments announced similar, though smaller, stimulus packages.

Chart 1: Global equities in US dollars since the start of 2020

Source: LSEG Datastream

The old saying “don’t fight the Fed” proved to be true as equities rallied on the back of its support for the financial system even as economies contracted at the fastest pace ever, effectively shutting down.

But it also proved to be true when inflation turned out to be more entrenched than initially thought. When the Fed and other central banks turned their attention to fighting inflation in 2022, equity and bond markets fell simultaneously in what was the worst year for global balanced portfolios in decades. 2023 saw a recovery in fits and starts, amid concerns that interest rates would remain elevated for an extended period, leading to a recession in the US and elsewhere.

Where do we stand today?

One notable feature of this entire four-year period is that the US equity market continued its outperformance over the rest of the world, stretching back to 2009. There was a moment when it seemed China would emerge from the pandemic in a stronger position than the West, and this was reflected in market pricing. The exact opposite happened of course, and the MSCI China Index is still 30% below pre-Covid levels today.

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