Key interest rates were increased in several countries, and market rates shot up everywhere. Even negative-rate markets resurfaced to see positive yields. Global bonds slid even further, deepening the loss this year alone to some 6%. Pundits lined up to deliver warnings of impending recession.
If you knew this in advance, would you be surprised to learn that most stock markets rose in March?
The S&P 500 returned a nice 3.7%, pulling the MSCI World Index up to a 3.2% gain. The Oslo Børs benchmark index, of course buoyed by the strong oil price, rose by 4.9%.
If you feel inclined to suspect good news, please see the first paragraph. Nothing unequivocally good happened in March, at least in the big picture. We simply got yet another reminder that you can't deduce market developments from the headlines.
So, why the strong global stock markets?
Two explanations stand out. First, things could have gone a lot worse. Russia could have suspended their gas supplies to Western Europe, setting off panic in the energy markets and perhaps producing a rift among European countries. On the battlefield in Ukraine, Russia could have detonated some smaller, tactical nuclear bombs. The war could have escalated beyond Ukraine's borders. There's no limit to the potentially awful news that we were spared, at least for now, news that looked gradually less likely as March progressed.
Hence, part of the conundrum may be down to good old-fashioned relief. Markets don't like uncertainty. As worst-case scenarios were pushed aside by admittedly bad news, at least we seemed to know somehow what had befallen us. When someone tells you that you are stumbling close to the gates of Hell, you prefer sad sights to fog.
Second, there was indeed a good fundamental reason for the appreciation: Earnings estimates were increased, not reduced. Pent-up demand, stimulus measures yet to be fully implemented, post-lockdown bloom, highly profitable companies ... Stock analysts may be proverbial optimists, but there are, arguably, good reasons to believe that present estimates reflect more than rosy glasses.
This is no venue for forecasts, but I'll venture this: If earnings hold up (i.e. downward revisions are held within the ordinary), the stock market will not crash in the near future. If, on the other hand, it does crash, earnings estimates will have to be slashed.
Stay tuned for news and returns.
Finn Øystein Bergh
Chief Economist & Strategist
Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.