Market Performance of Indices

https://lh5.googleusercontent.com/ObvNgDXw-3BoUohBVfoKnL7RBbXMHWo9zNOEhb8VoFcvM-GegMyeNjp2bcuXGWHta-PbIeoUUDqwc9RCSyJttuuCDEZy4zhyBG9hI7qXzDU_2hSM6dyUkSS3zhStbYfFZbrbGnUpseepZdS9TKSLvQ

1.1 Key observations

  1. IXIC consistently underperformed all three indexes between 2000 and 2002. This was during the dot com bubble burst when IXIC was overbought and valuations went through the roof, until the bubble burst due to companies filing for bankruptcy.
  2. What followed after the bust was an economy that saw a transitory rise in GDP till 2004 and then falling till 2008. However, inflation continued its upward trend from 1% to 3.84%. (See charts in Part 2)
  3. In 2008, during the Great Recession, all three indexes were negative, once again IXIC underperformed the worst amongst all three indexes.
  4. In 2009, post the Great Recession, and in an early phase of economic recovery, an environment with low inflation and interest rates, markets performed superbly with IXIC performing the best clocking in a return of 43%.
  5. Post 2009 Great Recession, 9 out of 13 years, IXIC outperformed DJI. Post 2013, IXIC outperformed DJI for 6 out of 9 years. This period was marked as one of the longest periods of sustained economic growth, and low interest rate environments (with few adjustments in fed rates from time to time)
  6. Post a blockbuster year for IXIC, (with a marked difference in performance between DJI and IXIC), the gap in performance between IXIC and DJI would narrow in the following years. This could be the result of economic recovery picking up, speculation of inflation and interest rates rising that causes DJI to pick up performance and close the gap with IXIC in the subsequent years.
  7. IXIC has been a clear winner in the last decade, overall. This is an environment where tech companies matured in a market with defined needs and products catering to the solutions, moving away from a “nice to have” or “visionary” narrative in the dot com bubble. Growth companies outperformed by magnitudes, given an era of low interest rates.

The question is: While interest rates will be adjusted in order to manage economic growth, are we going to have an environment of hyperinflation and therefore interest rates climbing to early 2000 levels? Or, is the new normal a deflationary environment where automation and globalization will put downward pressure on employment and costs?