Corporate bond spreads, which surged in the first five weeks of the crisis, have dropped back almost to pre-crisis levels for the highest rated bonds. For the lowest rated bonds, spreads have followed the same pattern, but they remain at elevated levels, relative to pre-crisis values. The ebbs and flows in equity and bond markets have also played out in commodities, where I track oil and copper on a daily basis in the graph below:
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Copper, after dropping 15.36% between February 14 and March 20, has more than recovered its losses and was trading 10.57% higher on August 14, than on February 14. Oil had a much steeper fall in the early weeks, down more than 50% in the first five weeks of the crisis, and while it too has recovered, it was trading about 20% below where it was on February 14. Finally, I look at gold and bitcoin during the crisis period:
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Comparing Bitcoin to gold, the cumulative return over the six-month period is not dissimilar, with gold up about 23% from its February 14 level, while Bitcoin is up 14%, but the performance over the six month period is telling. Gold has held its value through the crisis, reinforcing its crisis investment status, but bitcoin has been on a wild ride, falling about 40% in the first five weeks, when stocks were down, and rallying almost 89% in the weeks since, as stocks have risen, behaving more like very risky equity than a crisis investment.
Equities Breakdown
While looking at equity indices can provide a big-picture perspective on how stocks are doing, looking at individual companies can yield much richer insights. As in prior weeks, I updated my company-level data on market capitalizations to include the four weeks since my last update, and I report the changes in market capitalization, by region, in the table below:
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All of these returns are computed in US dollar terms, for comparability, and they are based upon the aggregate market capitalization of all companies traded in each of these markets. As you can see, a subset of emerging markets (Africa, Eastern Europe, Latin America), are showing the most damage, with weakening local currencies exacerbating market damage. Collectively, global equities on August 14 are back to where they were on February 14, reflecting the comeback story that the indices were telling. Breaking down global stocks by sector, here is what I see:
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Of the eleven sectors that S&P uses to classify stocks, six now have positive returns over the crisis period, and technology has now overtaken health care as the best performing sector. The worst performing sectors are energy, real estate and utilities, all businesses that are capital intensive and debt laden, and default worries about that debt burden may explain why financials remain the worst performing sector. Breaking sectors down into finer detail in industry groups, I list the ten worst performing and best performing industries, over the six-month period:
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The message in this table reinforces what you saw in the sector returns, with infrastructure, commodity and financial service industries making up the bulk of the loser list, and technology, health care and retail dominating the winner list.
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