What signposts can we watch to be confident shares have bottomed?

April 9th 2020

signpost main

Key points

  • While shares have rallied 15-20% from their March low and may have started a bottoming process, it’s still too early to say with confidence we have seen the low for this bear market.
  • Key signposts to watch for are: signs that the virus can soon be contained (here the evidence is starting to look better); monetary & fiscal stimulus to minimise collateral damage to economies (this gets a tick); signs that collateral damage is being kept to a minimum and growth momentum is bottoming (it’s too early for this one – albeit this may partly be a lagging indicator); and technical signs of a market bottom (some tick off).



After a roughly 35% plunge from their February high point to their lows around 23rd March, global and Australian shares have had a 15-20% rally. What’s more this rally has occurred despite increasingly bleak economic data ranging from plunges in business conditions surveys or PMIs (see the next chart) to a record 10 million surge over two weeks in claims for unemployment payments in the US. Volatility remains very high but at least we are seeing up and down volatility rather than all down as was the case into mid-March.


signpost 1
Source: Bloomberg, AMP Capital


Markets usually lead and so may have already factored in the worst. And we have seen massive fiscal and monetary stimulus over the last few weeks to match the coronavirus threat to economies. So maybe we have already seen the low for shares? Or maybe not? There is still a lot of bad news ahead regarding the virus and the economic hit and we still don’t know how long the shutdown will be for and hence it’s hard to gauge the size and duration of the economic hit, when the recovery will come and what it will be like. What’s more, past bear markets have often been interrupted by strong rallies, eg, October/November 2008 saw two 19% rallies in US shares followed by the ultimate low in March 2009. This could be the case here even if we have entered into a bottoming process.

So, what should investors look for in terms of when we can expect a bottom or be at least somewhat confident that the bottom has been reached? Not that anyone will ring a bell at the bottom or that investors will be bullish at the bottom.

The following are what we are looking for1:


Confidence the coronavirus will soon be contained

This is important as it will give guidance as to the duration of the shutdowns and their severity and hence the first round hit to the economy. There are several key things to watch:


signpost 2
Source: UBS, AMP Capital



signpost 3
Source: Worldometer, Bloomberg, AMP Capital



The bottom line on this is that there are a lot of balls in the air but the decline in the number of new cases in several countries including Australia indicates that shutdowns are working which in turn holds out the hope that they can be relaxed in a month or so (providing containment measures are rigorous). International travel will likely be the last restriction to be lifted.


Policy measures to support the economy

The past month has seen a massive ramp-up in monetary and fiscal measures globally and in Australia to support businesses, jobs and incomes through the shutdown period and to keep financial markets functioning properly. These are discussed here and here. Some (eg in Australia) are better than others (eg in the US) but with policy-makers committed to doing whatever it takes they provide confidence that second round damage from the shutdowns will be kept to a minimum, which will enable economies to recover once the virus is under control. We rate this as positive, although more may still need to be done.


Collateral damage being kept to a minimum/growth indicators bottoming

There are a range of indicators to track on this front, including:


Technical signs of a market bottom

Market bottoms usually come with a bunch of signs.


Signpost table

The following provides a summary. The key ones are in blue.


signpost 4


Concluding comment

Many of these signposts tick off positively so we may have seen the low. But given the uncertainty around the length of the shutdown, risks of a second wave and very poor economic data to come it’s still too early to say that with confidence. Trying to time market bottoms is always very hard so a good approach for long term investors is to average in over several months.


If you have any questions about this, please do not hesitate to contact us.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.


Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.