What a difference a day makes – 24 little trading hours

Allan Lane, Algo-Chain

By Allan Lane, Algo-Chain – During a week when the Dow Jones Industrial Average surged 11.4 per cent, the largest one day increase since 1933, this news seemed at odds with some of the more harrowing coronavirus statistics that hit the airwaves by the time US markets closed.

Not too sure about anyone else but I have been bumping into Schrodinger’s cat one too many times of late.  In the crazy world of quantum mechanics, one needs to operate in a way where two completely different views are true at the same time, well at least until one takes some decisive action. OK, let’s throw in the occasional backstory which on this occasion includes a USD2 trillion rescue package, but what exactly is going on, is it time to buy or sell? 

I suspect even active managers, who claim to crave the right sort of ‘volatility’, might be shaking their heads at the moment as one day’s worth of performance could have easily made or lost them 10 per cent.

In fact, it is no time to be flippant, so dramatic has been the onset of the crisis that what would normally be a headline story barely makes the headlines. For example, the S&P 500, along with other major benchmark indices, did not go ahead with their re-balancing recently and in March the OECD skipped the publication of their Composite Leading Indicators. Judging by the dramatic fall in many of the PMI numbers this week it is probably best not to look at how rapidly the macro economic environment has shifted – already the fall off has been severe.

True to fashion, once the markets caught wind of the scale of the epidemic unfolding in Italy (which incidentally doubled up with that jaw dropping moment three weeks ago when the price of oil dropped 30 per cent in one session), then the flight to safety turned into a landslide. As the last month unfolded, the strength of the US dollar saw it retain its status as the ultimate safe haven asset class.

Being a bearer of good news as well as bad, it’s interesting to study the one-month performance of a sample set of ETFs that cover a wide range of asset classes. Topping the list are the long-term Treasury Bond ETFs, which with the currency boost provided a return of around 20 per cent in GBP.  This good even extended to the Chinese Sovereign Bond market which offered a return of 10 per cent.  Perhaps somewhat surprisingly, gold only delivered on some of its promise due to currency effects and it’s fair to say it hasn’t been a one-way bet as it has traded down on many days during the month.

Coronavirus winners and losers 1-10

FIG 1: Performance measured in GBP (Source: Algo-Chain)

As market turmoil goes, the last four weeks match both 1987 and 2008.  Seeing such wild swings in the Dow invokes the image of ‘The Boy Plunger’, Jesse Livermore, the world’s first momentum trader who operated as a sole trader back in the times of the Great Depression. As one looks over the full list of 20 different ETF asset classes, within the space of one month the range of performance differentials at 74 per cent has been quite daunting.  Perhaps not surprisingly it is the energy infrastructure sector that has fared the worst, with property never doing too well during these hard sell-off periods either.

Of all of the surprises learnt thus far, the performance of a couple of niche/themed ETFs remains the most noteworthy. Among the Equity ETFs, the Market Vectors Video Gaming and eSports UCITS ETF has shown itself to be the most resilient – outpacing the S&P 500 by quite some stretch. With over one billion now confined to their houses, perhaps this shouldn’t come as a surprise after all. If we have learnt anything then judging by the Dow’s record rally, as Dinah Washington once said – what a difference a day makes – 24 little trading hours.

Coronavirus winners and losers 11-20

FIG 2: Performance measured in GBP (Source: Algo-Chain)

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