One of the most important sayings we have is “past performance is no guarantee of future returns” but can turning to history ever help spot long term trends? Particularly as we are in the middle of a technical depression that has not been seen in modern times?
There are very few parallels to this “Corona-crisis” but you could reasonably turn to the great depression (1929-1933), the great bear market of (1973-1974) or even the financial crash (2007-2009). In each of these cases, stock markets dropped over 50% or more (the US in excess of 90% from 1929) and (the UK 75% from 1973).
All these previous crashes took many years to regain their past highs and even longer to recover their dividends. (Dividends is the income or share of the profits an investor gets for holding shares long term). Dividends are normally vital to investments as their re-investment back into investments is where your long-term growth really comes from and not (as most clients believe) the increasing price of the share itself! In the past, the share prices took a dive and then the dividends were cut as a result.
Fast-forward to our Corona-crisis, stock markets have pretty much bounced back but the really interesting thing is that dividends are now coming under very heavy pressure across the board. For example, markets generally believe the FTSE 100 companies may slash their dividends by around 50%, the US S&P 500 by around 25% and the Eurozone around 40%. So overall maintained market valuations but with lower dividends – in other words the exact opposite of the great market falls of the past! – Perhaps then past performance really is no guarantee of future returns!