Illusions abound

The rally in equity indices (which troughed on March 23, 2020) has created a fascinating observation of investor behaviour and cognitive biases.

For context, the ASX 200 produced 74% of its rally return before May the 1st.

The index rose 26.5% from March 23rd – April 30th (5 weeks) and has since climbed 9.5% from May 1st – June 4th, for the next 5 weeks.

As you can see, it did most of the work in the first 5 weeks following its low.

The second half has felt like an illusion that it moved up each day.

In fact, the ASX 200 was “flat” from May 1st until May 22nd. It rose 9% in the past 9 trading days.

While the S&P 500 rose 32% in the 5 weeks from March 23 – April 30 and its advance for the next 5 weeks was also 9%. A sharp rise of 12% occurred over the past 14 trading days.

June 5, 2020
by Rob Zdravevski

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