Bully in Bear Den

In this Great Lockdown, why some stocks shot up by 60-70 per cent? What explains such bewildering trends?

- Yagnesh Kansara

The global stock markets can be irrational, as well as rooted in facts. They can behave in mysterious ways, as well as in a manner that’s logical and commonsensical. Sometimes, they move in sync and, at other times, they show obstinacy towards each other. This interplay can lead to trends that are both weird and scientific. Nothing epitomises this better than the defiance and convergence between the indices like the Dow Jones and NASDAQ in America, and the Indian Sensex over the few months during the ongoing COVID-19 pandemic.

On February 12 this year, the American Dow Jones was at a high of 29,551. It dipped by 37 per cent in 39 days (March 23). Over the next 57 days, by May 19, it climbed up to over 24,000, a rise of 30 per cent. A similar trend was noticed in the behaviour of the Sensex. From February 12 to March 23, it plunged by 37 per cent, and then soared by 16 per cent by May 19. On April 30, the index was at 33,718, which signified an upturn of 30 per cent from its March 23 low. The similarities were uncanny; the two seemed closely coupled.

In comparison, the NASDAQ, which comprises technology stocks, seemed to defy the insidious impact of the coronavirus pandemic. From its high in February, it tumbled by 30 per cent by March 23, but then surprisingly— actually shockingly—it almost regained the entire losses. On May 19, it stood at 9,185, only marginally down from its high of 9,818. Was this movement rational or irrational? Why did the Dow Jones and Sensex rebound during the period when both the respective economies were shuttered.