S&P vs. Software – Comparing 2008 to 2020
An honest observer of the Corona Virus outbreak and its implications for life as we know it would agree wholeheartedly with the sentiments expressed thousands of years ago by Socrates, “I know that I know nothing”. Those expressing certainties for the future are the unwise. But while the future is uncertain, human ingenuity and resilience have taken us from treetops to skyscrapers and this will not be our end.
Since the markets began their free-fall in mid-February, the global financial community has been looking to history for answers as to what comes next and how to best prepare for uncertainty. While the underlying causes of the 2008 financial crisis were fundamentally different than what we’re experiencing now, the similarity in magnitude between the two events are worth exploring. In graphics below, we collected historical data of the S&P as well as from a proprietary software index of companies which were public during both events.
Our graphic for 2020 begins at February 19; the S&P 500’s all time high close at 3,386. At this point in time, there were 15 confirmed cases of Corona Virus in the US. The period for our 2020 graphic extends to this past Friday, April 3, when there were now 311,357 confirmed cases of Corona Virus in the US.
Source: Pitchbook.
Looking at our 2008 graphic, we chose Friday, September 12, 2008 as our start date – the Friday before Lehman Brothers declared bankruptcy – and collected data on the following 33 trading days (same duration as above) through October 28. While the S&P had not reached a new high in over a year at the time, we chose this date due to the pivotal nature of the event and the widely held perception that Lehman’s bankruptcy and Congress’ subsequent refusal of the first bailout package sparked the crisis.
Source: Pitchbook.
While the S&P over both periods performed relatively similarly and experienced massive volatility, from the close of October 28, 2008 – March 9, 2009, the index fell a further 28%. One area of significant difference is the strong out-performance of our software index in 2020 against the S&P vs. the strong under-performance of the same index in 2008 against the S&P. In terms of magnitude, the Sampford software index in 2020 outperformed itself in 2008 by 11.3%. This out-performance is the result of the world having become increasingly more critically intertwined with technology and software since 2008 and a sign that investors perceive the sector as defensive against the wider market in our current crisis. Unlike 2008, our data for 2020 ended this past Friday and the future has yet to happen but it is safe to assume we have not bottomed out yet. From peak (October 9, 2007) to trough (March 9, 2009), the S&P 500 lost ~57% of its market cap and Sampford’s software index fell ~52% over the same period.
In the past two weeks, over 9.9 million Americans have filed for unemployment, orders of magnitude higher than previous highs, 3 in 4 Americans are under some form of lock-down and financial stimulus to date has openly been discussed as being multi-phased and, so far, ineffective in mitigating the human costs of the virus that extend far outside the hallways of hospitals. What’s to come next is anyone’s guess, but one thing history has taught us about these moments is we need to adapt to new information as it comes to light as we look for solutions that get us to a “life-after” scenario because life will, and has to, go on.
Lock-downs are necessary as we slow the spread through social distancing and building up hospital capacity, PPE production and data on the disease to begin our research for a cure. But lock-downs aren’t sustainable for months on end and more so if the initial timelines being given are for an indefinite basis.
One aspect to consider when discussing extended lock-downs and the unemployment that inherently follows is that according to “Losing Life and Livelihood: A Systematic Review and Meta-Analysis of Unemployment and All-Cause Mortality”, your risk of death increases 63% when you lose your job. This study was published in 2011 so it can be assumed due to the current global health pandemic, that figure has increased.
This is all to say that we need to face the realities of all the areas the virus is impacting head-on and unified, both as nations and as a species, and despite where we find ourselves now, our best days are yet to come.
About Sampford Advisors
Sampford Advisors is a boutique investment bank exclusively focused on mid-market mergers and acquisitions (M&A) for technology, media and telecom (TMT) companies. We have offices in Toronto, Ottawa and the US and have done more mid-market tech M&A transactions than any other adviser.