The rapid stock market sell-off – which saw the S&P 500 slide 3 per cent again on Thursday, with the FTSE 100 down 3.5 per cent on Friday morning – is unlikely to end the long equity bull market run, according to Target QR Strategies, the US hedge fund investment adviser.
Portfolio manager Robert Zuccaro believes that while the ongoing concerns over the impact of the coronavirus outbreak may push markets lower “for a while”, the downdraft will be followed by a “strong market recovery”.
Zuccaro – a quantitative investing veteran who focuses on midcap equities - pointed to the experiences of 1998’s market turbulence, adding that while the S&P was up more than 28 per cent that year, there were far more severe threats to the economy then than the COVID-19 concerns today.
Specifically, he cited the collapse of Long Term Capital Management - the highly-leveraged hedge fund which almost sunk the US Federal Reserve System through its disastrous bets on US treasuries – as well as the Russian currency crisis which saw Moscow devalue the rouble and default on much its debt.
“Serious Y2K concerns were also weighing on the market, and at that time over USD100 billion was diverted into tactical projects by the government and private sector,” Zuccaro wrote in an investor note this week. “Some people believed that computers would come to a halt on the first day of the new century, and uncertainty rattled the markets.”
Ultimately, the S&P 500 lost 18 per cent of its value in less than two months between July and September 1998, but finished the year with a strong rally, up 28.6 per cent.
“As stated many times before, serious investors should never consider newspaper headlines,” said Zuccaro, whose firm advises two long-biased US equity hedge funds. “Investors should maintain perspective and not allow emotions to direct their investment strategy.”