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Many things that happened in 2020 appear to be counterintuitive, especially when it comes to the stock markets. Not many had expected major equity benchmarks such as the Dow Jones, S&P 500 and Nasdaq to hit their all-time highs amid a severe pandemic-led global recession. During the 2008 global financial crisis, it took the S&P 500 a few years to return to the pre-crisis level. This time around it took only a few months before it surpassed its pre-Covid perch.
People tend to apply past experience in extrapolating future outcomes, but this could be dangerous for trading because markets are consistently evolving. Central banks have learned lessons from past crises and took much faster actions to contain systemic risk this time around. Great investors dare to seize the opportunities during a time of crisis, buying when the majority might be reluctant to participate. The reverse is also true. Be vigilant when the market is full of complacency.
Nikkei 225 Index Weekly Chart
Recommended by Margaret Yang, CFA
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— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter
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