How COVID-19 bear market stacks up against history: Peter Oppenheimer - Business Insider

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How COVID-19 could break this important 140-year global economic cycle, according to a head of research at Goldman Sachs

I look at the history of investment cycles, and how they are driven by economic cycles. It's interesting that over many decades, despite significantly different circumstances, economic and market cycles both seem to repeat themselves.

So how does the coronavirus bear market compare? In many ways, of course, it should be considered an event-driven one. After all, the post financial crisis economic expansion was the longest economic cycle for 150 years , and was showing few signs of ending before the pandemic hit, derailing the global economy.

The impact of policy easing cannot be overestimated. Swift action by central banks has eased many of the tensions in financial markets that built in February and March. Credit markets have reopened. Capital outflows have stabilized across EM debt and equity funds. Fears of systemic problems in the financial 'plumbing' have faded.

While the initial risk rebound was led by fairly defensive and growth-related companies, over recent weeks we have seen markets move into a second phase, with a further rally in equities being driven by a sharp rotation of leadership towards value and cyclicals. In many ways, this has been more typical of the kind of rotation that tends to be seen at bear market lows.

In terms of style, it is understandable that a genuine inflection point in the economy, from such a low base, would trigger a powerful rotation towards cyclical, high beta, and weaker balance sheet companies. But, unless the underlying fundamentals of low nominal growth, bond yields and earnings change, or there is a significant challenge to the digital revolution, we would see such rotations as tactical, or short term, not secular.

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