March was kind to the broad asset classes, and not a moment too soon. After February's across-the-board declines, and virtually the same in January, a respite from the turmoil was overdue. Even in a global recession, prices don't fall continuously.
But they do fall, and it's not clear that the markets are through with discounting additional economic troubles. One sign for concern is that as markets rose last month, the estimates for the world economy worsened. Both the IMF and OECD are now projecting outright declines for global GDP this year. The OECD's projection is quite a bit worse, anticipating a 4% drop in the world economy vs. a relatively mild fall of 0.5%-1.0%, according to the IMF's estimate. That may look mild on a single-nation basis, but in the context of the global economy it's quite steep, not to mention unusual.
But for the moment, there's March. As our table below shows, everything popped last month. Equities across the world delivered a stellar performance, with emerging markets soaring by more than 14%. U.S. equities generated a robust gain as well in March, advancing nearly 9%.
March, in fact, was one of the better months for stocks generally in many a moon, proving if nothing else that powerful rallies can and will show up in nasty bear markets. But let's not forget that we're in a bear market and it's not yet over. Economically speaking, there's not much confidence about where we are in the cycle. Yes, there have been some encouraging signs recently, as we've discussed, including here and here. But the full brunt of the global recession isn't yet known. By our reckoning, coming to terms with the beast will take another quarter or two, perhaps longer.
The equity market will no doubt play its traditional role of anticipating the rebound, which means that prices will start turning up well ahead of macroeconomic data confirmation. But it's still too early to assume that the turning point is in sight.
That said, there's an enormous amount of money in cash and equivalents. At some point, perhaps sooner than we think, the crowd will grow weary of earning nothing. The appetite for risk is set for a rebound. But not yet. Strategic-minded investors will want to stay vigilant however, and take advantage of selling. But it's still premature to call for outright buying.