By Philip Lawlor, head of Global Markets Research
The risk-on rally since late March gained traction in May, extending what has been a remarkably swift rebound from a historically sharp collapse in global equity markets this year.
It took just 24 trading days for the FTSE All-World Index to hit bottom, a blink of an eye compared to the length of time for it to do so during the last two major market crashes. It took only another 49 trading days to recoup nearly three-fourths of its pandemic loss of 32% at the height of the sell-off in March. The roaring April/May risk rally has trimmed the world index year-to-date declines to 7.9%.
Covid -19 market moves resemble a correction, not a sustained bear market (LC, TR %)
Source: FTSE Russell. Data through of May 31, 2020. Past performance is no guarantee to future results. Please see the end for important disclosures.
US winning streak continued in May
The strong May showing has put US equities strongly ahead of their international peers, trimming losses for the US large-cap Russell 1000 to 4.9% for the year so far, roughly one-third the 12.0% decline of the FTSE All-World ex US. This extended rally has added significantly to the US index’s sizable 12-month outperformance versus the rest of the world, while other developed markets continue to lag, despite a recent rebounds in Europe and Japan.
Russell 1000 vs FTSE All-World ex US (TR, LC, rebased)
Source: FTSE Russell. Data through of May 31, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
As elsewhere, small-cap stocks in the US have eclipsed their larger-cap counterparts in the risk rally, with the Russell 2000 up nearly 40% from its March 23 lows versus the Russell 1000’s 38% gain.
Despite this recent strength, small-caps have much more work to do to dig out of the deep hole left by the March meltdown. The Russell 2000 is down 17.2% from its mid-February high, nearly twice as deep as the Russell 1000’s 9.7% decline for the same period.
Contributions from winning sectors explain why
As the chart below shows, the US has benefited from both the scale of the sector-weighted contributions from software and technology hardware stocks since the March low and from the greater concentration of those from its strongest winners. Contributions from the six strongest performing US sectors were at least twice the size of those of the top six non-US sector performers.
Top 10 sector-weighted contributions to total returns since March 23, 2020
Source: FTSE Russell. Data from March 23, 2020 to May 31, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
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