The Effect of National Lockdowns on Equity Markets

By Alfie Davies, MSc Banking and Finance Student at King's College London

The Government's decision to relax household mixing measures between the 23rd and 27th of December has caused many people to become increasingly aware that this may come at a significant price as we head into 2021. Environment Secretary George Eustice recently failed to rule out a third national lockdown[1] as patience in the ‘tier’ system is wearing increasingly thin. Investors such as Bill Ackman have positioned portfolios in line with these predictions[2], aiming to hedge positions against the threat of further national restrictions.

The first nationwide lockdown in March cost the economy an estimated £130tn in lost GDP[3] and triggered a market slump described as a ‘full body seizure’ which far outweighed the ‘heart attack’ of the 2008 global financial crisis[4]. What have we learnt from this and what could we expect to see if a third lockdown were put in place?

The period between February 18th, when the virus was in its early spread phase and April 9th, a few weeks after the first nationwide lockdown was announced, made for particularly grim reading in the financial markets. The S&P500 recorded a 32.5% drop over this period, whilst recording its third worst trading day in history on March 16th, following only The Great Crash of 1929 and Black Monday of 1987. US market volatility, measured by the VIX index, reached its highest peak since the 2008 crisis[6]. The FTSE struggled equally, recording a 29.68% drop over the period, including its second worst trading day in history in which it lost over 10% of its value.

The S&P500 Index dropped by a total of 32.5% across a 50-day period in early 2020 (Data Retrieved from (

Supply and demand changed considerably as the pandemic unfolded, resulting in a small group of winners emerging in the equity markets. Controversial stockpiling and an increase in home cooking meant that Premier Foods, who own popular food brands such as Sharwoods, Bisto and Mr Kipling, saw a 345% rise in share price between 23rd March and 16th July. The unfortunate rise in the demand for ventilation systems was reflected in BATM Communications’ 213% stock growth across the same period. The expectation for economic turmoil was reflected in the price of gold, historically a safe haven for investors in times of market uncertainty. This precious metal has experienced a 28% growth between the first lockdown and early August 8th, before prices dropped steadily to reflect the easing of national restrictions and the perception that the worst of it was over.

The 28% 8-month growth in gold prices reflected a cautious approach to the year from investors (Data Retrieved from

It is clear that the pandemic brought widespread economic disruption to the world, but how did we cope when the threat of a second wave became a reality? The final week of October, when Europe was bracing itself for the further restrictions on ‘non-essential’ businesses, was unsurprisingly the worst week for the markets since March. The markets turned extremely cautious, which was reflected in another steady growth in gold prices, as investors turned their focus towards hedging against losses. Market volatility climbed sharply on the VIX Index on the 30th October [9], its most volatile peak since the end of the first lockdown.

In the equity markets, the S&P500 and FTSE lost 5.6% and 3.4% respectively – only a fraction of the volume that was lost 7 months prior. Hardest hit was naturally the hospitality industry, for whom it felt like the success of the “Eat Out to Help Out” scheme would mark the end of a grim year. Pub operator Mitchell & Butler’s lost around 15% of their value [10] as pubs nationwide were forced to close their doors for a second time this year. Despite the challenges that a lockdown poses, there are significant differences between the two we have experienced so far. With schools open and enforcement lower, we can be hopeful that we won’t experience another one in its original form. Whilst we have seen investors turn cautious in expectation of government announcements, a significantly lower impact on the markets could be expected going forward.

If a third wave did follow from the relaxation of measures around Christmas time, it would be interesting to see whether the effects of this on the markets are dampened by The January Effect, the seasonal tendency for stock prices to rise during this month. This hypothesis has held for the S&P500 for 56 of the past 91 years [11], and if this happens again there is a chance that the market would be in a better position to absorb the impact of a third round of national restrictions. Overall, we have learnt from the two lockdowns that there will always be (albeit fewer) winners and losers. Of course, we hope that a third wave will not cast a shadow on the first month of 2021, but we can take some comfort in the knowledge that the markets have adapted and learnt to absorb the shock of national lockdowns. We can hope that the ratio of losers to winners will decrease, and that the government will find ways to support struggling industries.

Hopefully, we will escape the cycle of lockdown – increased spending – lockdown that we have been trapped in for the past 9 months and the markets will emerge stronger as we resume some degree of normality.













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