All this is happening at a time when the global economy is already in a slump. Last year, for example, the world recorded its lowest growth since the financial crisis. Nevertheless, in mid-February, in expectation of double-digit earnings growth for 2020/21, numerous stock indices were still at historic highs. It was already clear at the beginning of the year: these high expectations make the markets fragile and susceptible to bad news. And then, unfortunately, the bad news became reality.
The emergency stop just mentioned nullifies these optimistic expectations. It is not yet possible to estimate how much and for how long the economy will suffer from the pandemic, but a more severe cooling is inevitable. This change in investor perception led to a general sell-off on the equity markets as early as February. At the same time, safe havens such as government bonds, the Swiss franc and gold experienced brisk demand.
After this correction, the uncertainty was perfect. Volatility continued to rise and share prices continued to slide. To make matters worse, the oil dispute between Russia and the Organization of Petroleum Exporting Countries (Opec) escalated. The shock on the oil market (at times it was down 30%) exacerbated the already uncertain situation on the equity and credit markets. What followed was a wave of panic selling the likes of which we have never seen before. Around the globe, equity markets crashed. What was missing in February arrived in March: a clear rotation from cyclical to defensive stocks. IT, industrial, financial and, above all, energy stocks lost significantly, while the utilities and consumer staples sectors, for example, held up relatively well. It is slowly becoming clear that the high expectations can no longer be justified. Energy companies in particular suffered on the bond markets, whose credit spreads and thus the probability of default rose sharply. This in turn has high contagion potential for illiquid and risky investments.
