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The last couple of months have been extremely tough for all the financial markets around the world, including the benchmark FTSE 100 Index of the London Stock Exchange. The markets have been going through bloodbath, and collectively the major markets across the globe have lost trillions of dollars and pounds in value due to the price drop in the stocks of the companies trading on those indices. This tough time has primarily been driven by the spread of the covid-19 or novel coronavirus, which has now become a pandemic. The virus which was said to have originated in China has till now affected more than 866,000 people across the world, with more than 42,000 people reportedly losing their life. This spread and chaos created due to it have led to a gigantic economic slowdown, as China is a key supply chain route and a trade partner for some of the biggest countries in the world.
Though the numbers of cases have declined significantly in China in the last one month, but the disease has not stopped spreading in other parts of the world, with Europe turning as the new epicentre of the disease, primarily due to the huge number of cases being reported from countries such as Italy, Germany and Spain. The number of cases in the United States of America is also increasing every day at an unprecedented rate. At the time of writing, the number of confirmed coronavirus positive cases from United Kingdom was reported to be at 25,150, with more than 1,800 people deceased. This pandemic has brought all the Industrial as well as the economic activities to a standstill, leading to a huge recession in almost all the developed countries such as United Kingdom, European Union and the United States of America. Experts believe that this recession could be deeper and more impactful than the recession which followed the 2008 Financial Crisis, simply because of the number of people and businesses that will be affected by this large-scale health and Financial Crisis.
The governments and the Central Banks of the above-mentioned nations have started accessing the actual impact of this spread and have started taking measures to minimize the anticipated damage to the citizens and business of their countries.
Rishi Sunak, the Chancellor of the Exchequer of the United Kingdom, unleashed a huge £330 billion bailout package to support both small and large companies with loan guarantees and credit facilities as well as job workers with packages for this period. Similar economic bailout packages have also been announced by the government of the United States of America and the US Federal Reserve and by the governments of the other countries. Since the announcement of these bailout packages, the markets, especially the FTSE 100 Index and the FTSE 250 Index of the London Stock Exchange have shown some signs of recovering.
The following is a closer look into the performances of two of the biggest stock indices of the world, over the past few months – the FTSE 100 Index of UK and the S&P 500 Index of the USA.
S&P 500 (.SPX)
Source: Thomson Reuters, as on 31-03-2020, after the close of the New York Stock Exchange Market
The S&P 500 Index is an index of the top 500 stocks listed on all of the exchanges in the United States of America by Market Capitalisation.
At the time of the close of the market on 31st March 2020, the S&P 500 Index was reported at a value of 2584.59 points, a decline of 1.60 per cent or 42.06 points as opposed to the value of the index at the time of the close on the previous day at 2626.65 points. The index has reportedly lost around 20.00 per cent since the year to date (31st March 2020) from the value of 3230.78 points at the time of closing at the turn of the year on 31st December 2019. This decline has been driven primarily by three big events. First can be said the uncertainty around the phase one of the trade deal that was agreed with China at the turn of the year. The details and the terms of the deal were though not made clear to the businesses and the citizens and markets, even in the recovery mode, were extremely volatile and the investors still don’t seem confident enough. The second major event has been the outbreak of coronavirus in China, which led to a number of US businesses having had to close down their activities and factories in China. The companies have started announcing that they will be cutting their estimates for the Q1 2020 and FY 2020 earnings, as there was a steep fall in the market prices of these companies. This was followed by the outbreak of the disease in the US itself as the community spreading began in the country, leading to a halt of all economic activity, which further drove the markets downward.
In the last one month, the index had lost 505.64 points or 16.36 per cent in value, since the close of the markets on 02 March, 2020, when the index was trading at a value of 3090.23 points. There was a slight recovery of the index in the first week of March, that was driven by the economic stimulus measures taken by the government of the United States of America as well as the Bailout packages announced by the Federal Reserve. Despite that, the markets continue to be volatile because of the sudden spike in the number of daily cases of Coronavirus, which don’t seem to come down very soon. Despite these challenges, some stocks which are the part of the index seem to do well. Netflix Inc. has gained around 16.00 per cent in the last one month because of the increasing number of subscribers for the company during the period of lockdown, Regeneron Pharmaceuticals Inc. gained approximately 30 per cent, as the company’s research and development department is at the forefront of trying to find a cure of the coronavirus disease and bring it to the market as early as possible.
FTSE 100
Source: Thomson Reuters, as on 31-03-2020, after the close of the London Stock Exchange Market
The FTSE 100 Index is the benchmark index for the London Stock Exchange and includes the top 100 companies listed on the London Stock Exchange by market capitalisation. At the time of writing, on 1st April 2020, at 08:30 A.M, the index was reportedly trading at a value of 5472.09 points, a decline of 199.87 points or 3.52 per cent in comparison with the value at the time of the close of the market on the previous day, which was reported to be at 5671.96 points. In the Year to date period (31st March 2020), the FTSE 100 Index had lost approximately 24.8 per cent, almost one-fourth of its value, since the turn of the year, at the time of the close of the markets on 31st December 2019, when the index was trading at a value of 7542.44 points. The index had lost around 22.49 per cent in the last one year to 31st March 2020 while it had lost approximately 14.77 per cent in value in the last one month. This performance of the index has been primarily driven by four major events. The uncertainty around Britain’s exit of the European Union was the first, which resulted in huge losses for some of the major sectors such as retail and automotive. This was followed by the uncertainty around the snap election announced by Boris Johnson. Markets showed signs of recovery at the beginning of 2020, with Brexit deal being agreed and a successful exit for the country from the European Union. Then it was the outbreak of the coronavirus in the country, in the month of February, which brought the entire country to a standstill with the country being put into a lockdown, which led to all economic and industrial activity being stopped. The markets showed some recovery in the middle of March, after the announcement of quantitative easing measures and bailout package from the Bank of England and Exchequer, but that joy was short-lived, as the markets plunged again soon after it was announced that the prime minister and the health minister of the country were also tested positive for the Coronavirus.
Comparative YTD chart of some of the major Indices across the world
Source: Thomson Reuters, as on 31-03-2020, after the close of the London Stock Exchange Market
The chart above shows the comparative year to date (31st March 2020) performances of some of the major stock indices in the world which are the Dow Jones Industrial Average Index (USA), the FTSE 100 Index (UK), the DAX Composite (Germany), the S&P BSE Sensex (India) and the S&P 500 (USA). This chart shows that none of the top exchanges or indices has performed well in this period of global economic slowdown, and all countries and their financial markets had been impacted significantly. The S&P 500 Index can be called the best among the worst performers, with the least amount of losses, a 20 per cent negative YTD return, when others have registered in excess of 23 per cent.
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