A fund investor’s perspective: recovery or dead cat bounce?

Putting money into this fund worked well, but Saltydog investor has plenty of money to redeploy.

This year started with stock markets around the world continuing their upward trajectory after a strong 2019. Several went on to set new all-time highs.

In the end, it was the spread of the coronavirus that put an end to the 11-year bull market.

During February and March global indices fell dramatically.

In the UK, the FTSE 100 index went from 7,675, on the 17 January to 4,994 on the 23 March, a drop of nearly 35%.

The Dow Jones Industrial Average, S&P 500, and Nasdaq all set record highs earlier in the year and then went on to fall by at least 30%.

The table below shows where a number of the world’s stock market indices were at the beginning of the year, what they went up to, how far they fell and where they are now.

In the last few weeks, we’ve seen markets around the world rally. In the UK, the FTSE 100 is now 17% higher than it was when it reached its low in March.

It is slightly confusing because of the vagaries of how percentages work. Although the index dropped by nearly 35%, it will have to go up by almost 54% to get it back to the highest that we’ve seen this year.

What we don’t know is whether we’ve now seen the bottom of the market, or if this is just a temporary reprieve.

Looking back to the Great Financial Crisis of 2008/2009 there were several false starts before the markets finally started to recover.

The FTSE 100 had peaked in 2007 when it briefly went above 6,750, but by the end of the year had fallen to 6,457. 

On 17 March 2018, it closed at 5,414. It had gone down by 16% since the beginning of the year and we were heading into a ‘bear’ market. It then rallied and by the 19 May had gone up by nearly 18%.

Anyone who thought that it was safe to go back into the markets had a big shock coming. By the 21 November the FTSE 100 had fallen a further 40%.

And even then it wasn’t over. The index finished the year well, and by the 6 January had rallied by 23%. It then fell again, this time losing 24%.

On 3 March 2009 it closed at 3,512, over 45% lower than it was at the beginning of the previous year.

Each crash is different, and there’s no reason to believe that the current downturn will follow the course of the last one.

What it does show is that just because we’ve seen a strong rally in the last few weeks, it doesn’t mean that markets can’t go significantly lower.

In our Ocean Liner portfolio, we have started to reinvest and a couple of weeks ago bought the Royal London Sustainable World fund. Since then it’s gone up by 7%. However, we still remain cautious and less than 10% of the portfolio is currently invested.

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