The Bear Case: How PCG Behaves During Market Shocks
Holding equities means accepting volatility as the price of long-term compounding. Across the 15 major systemic shocks where PG&E (PCG) traded, the stock posted an average drawdown of -19%. For context, the S&P 500 averaged a -16% decline during those same periods.
If you are an investor in PCG stock, you might be asking: if the macroeconomic environment fractures, how far can this stock actually fall?
The answer depends entirely on the transmission mechanism of the crisis. Not all market shocks are created equal. To accurately price the risk, we have to isolate how PCG reacts to different types of systemic stress.
What Is The Stock’s Greatest Vulnerability?
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When dissecting these past crashes by their root cause, a clear pattern emerges: PCG faces its most severe structural headwinds during ‘Growth & Demand Scare’ environments. While broad market equities are affected by such environment, PCG has historically suffered outsized downside when this mechanism triggers. During these events, the stock has averaged a -52% decline.
To internalize the risk inherent in this stock, here is exactly how it behaved during its most severe tests across three distinct macroeconomic environments.
How Does It Handle A Growth & Demand Scare Shock?
Q4 2018 Fed Policy Error / Growth Scare (Oct 2018 to Jan 2019)
Fed Chair Powell stated on Oct 3 that rates were a long way from neutral, signaling continued aggressive hiking. This coincided with trade war escalation to tariffs on $200B of goods, Apple issuing a rare revenue warning citing China weakness, and the Treasury yield curve inverting, which is historically a reliable recession signal.
The market concluded the Fed was making a policy error, hiking into a slowdown while simultaneously shrinking its balance sheet. Corporate earnings estimates fell and credit spreads widened sharply. Every sector fell simultaneously, including defensives, signaling genuine recession fear rather than simple rotation. The Fed reversed course at its January 2019 meeting and markets immediately recovered, validating the policy error thesis. December 2018 was the worst December for U.S. equities since 1931.
PCG stock reaction vs other assets: The stock fell -85%, while the S&P declined -19% and bonds saw -2.2% move
What Happens During A Rate & Valuation Shock Scare?
2022 Fed Tightening Inflation Bear Market (Jan 2022 to Oct 2022)
Post COVID stimulus combined with supply chain disruptions drove CPI to 9.1% by June 2022, the highest since 1981. The Fed, having misjudged inflation as transitory through 2021, was forced into the most aggressive tightening cycle since Volcker, hiking from 0% to 4.25% in nine months. Russia’s invasion of Ukraine in February 2022 further spiked energy and food prices globally.
The defining feature was that stocks and bonds fell simultaneously, eliminating the traditional 60/40 portfolio hedge. Rising rates compressed equity valuations while simultaneously crushing bond prices, with long duration assets such as tech, growth equities, and REITs suffering the most. The rate shock also exposed crypto and SPACs built on zero rate assumptions. The bear market ended when CPI began declining in October 2022, allowing markets to anticipate a Fed pivot.
PCG stock reaction vs other assets: The stock fell -20%, while the S&P declined -24% and bonds saw -35% move
Can It Survive A Credit & Liquidity Crises Crisis?
2008-2009 Global Financial Crisis (Dec 2007 to Mar 2009)
A decade of excess leverage in U.S. housing, packaged into opaque structured products and distributed globally, began unwinding. The proximate trigger was the Lehman Brothers bankruptcy on Sep 15, 2008. The government chose not to bail out Lehman, shattering the assumption that systemically critical institutions would be rescued and freezing global financial plumbing overnight.
The commercial paper market collapsed, money market funds broke the buck, and global trade finance seized. Banks stopped lending, businesses stopped investing and hiring, and global trade volumes fell sharply. The Fed, ECB, and other central banks cut rates to zero and launched unprecedented asset purchase programs. The recession was the deepest since the Great Depression, with U.S. unemployment peaking at 10%. Oil crashed from $147/bbl in July 2008 to below $35 as global demand evaporated, devastating energy and commodity sectors.
PCG stock reaction vs other assets: The stock fell -30%, while the S&P declined -53% and bonds saw None move
Past Market Shock Drawdowns Summarized For PCG
| Shock Event | S&P | Bonds | Sector | Stock |
|---|---|---|---|---|
| Summer 2007 Credit Crunch | -8.6% | None | -6.5% | -5.7% |
| 2008-2009 Global Financial Crisis | -53% | None | -45% | -30% |
| 2010 Eurozone Sovereign Debt Crisis / Flash Crash | -15% | None | -7.9% | -8.4% |
| 2011 US Debt Ceiling Crisis & European Contagion | -18% | -1.1% | -11% | -8.3% |
| 2013 Taper Tantrum | -0.2% | -17% | -11% | -14% |
| 2014-2016 Oil Price Collapse | -6.8% | -5.0% | -2.8% | -3.9% |
| 2015-2016 China Devaluation / Global Growth Scare | -12% | -4.4% | -11% | -12% |
| 2016-2017 Trump Reflation Bond Selloff | -3.7% | -15% | -8.1% | -7.0% |
| Q4 2018 Fed Policy Error / Growth Scare | -19% | -2.2% | -1.0% | -85% |
| 2020 COVID-19 Crash | -34% | -0.7% | -35% | -59% |
| 2022 Fed Tightening Inflation Bear Market | -24% | -35% | -11% | -20% |
| 2023 SVB Regional Banking Crisis | -6.7% | -4.3% | -6.2% | -2.4% |
| Summer-Fall 2023 Five Percent Yield Shock | -9.5% | -17% | -17% | -15% |
| 2024 Yen Carry Trade Unwind | -7.8% | -1.2% | None | None |
| 2025 US Tariff Shock | -19% | -3.8% | -8.3% | -13% |
So What Can You Do For Your Investments?
Ultimately, surviving a market crash requires knowing what breaks your specific holdings. For PCG, the kryptonite is clearly Growth & Demand Scare. By sizing your positions with these specific drawdowns in mind, you can remove emotion from the equation entirely.
Adoptin objective and rule-based portfolio management is the most effective way to protect capital when the macro environment inevitably fractures again. Trefis High Quality Portfolio is designed with such priciples in mind, and has returned > 105% since inception.