Past is prologue…but only time will tell

There were those of us who thought valuations were expensive and leverage stretched but were expecting a ‘normal’ end to the cycle or perhaps some risk aversion coming into the US election later this year. What we got was an abrupt cessation of pretty much all economic activity, a dramatic drop in the price of equities and widening of fixed income spreads across sectors and arguably a more challenged liquidity environment in March than we ever saw during the financial crisis. We think the difference in 2008/09 versus late March 2020 was that in 2008, we didn’t necessarily like the prices but there were prices. For a couple of days in March, prices were largely non-existent, even for US Treasuries, especially if you wanted to sell bonds. The other big difference between these two periods is the speed in which prices have recovered to more normal ranges, which is the main topic of this abbreviated quarterly – we’re guessing you have heard quite a lot from managers recently – updating, apologizing or pitching!

Before writing this paper, we thought it would be interesting to go back and review our client communications in the financial crisis to see how we were thinking about markets then and the issues that we faced. Of course, the current crisis is very different, but market psychology doesn’t change that much, and we know there are things we can learn from how we and the market behaved back then.

Please find the full paper below:

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.