March 2020—RIP

For most investors March could not have ended soon enough.  Stocks were down 12.5% (actually I thought it would have been worse, but we’ll talk about that more in a second).  Obviously that’s bad, but since 1929 there have been 18 months that were worse.

With emotions running high as the stock market plummets and, more importantly, as the body count from the coronavirus rises, it’s important to use data to put everything in perspective.  Let’s dig into what the numbers say.

Ultimately, I am optimistic.  Also, as bad as it is right now, it has been worse and we’ve made it through.  Hope this post makes you feel better.

Things feel pretty bad right now

As we said above, March was the 18th worst month for the US stock market since 1929.  What makes it feel worse is that February was down 8.4%, the 84th worst month.  That’s a helluva one-two punch.  But even then, this was only the 13th worst two-month period for stocks.

I say all this because what we have gone through has been bad, really bad, historically bad.  But it has been worse; many, many times it has been worse.  The optimist in me says if we survived all those other times, then we’ll survive this one too.

Light at the end of the tunnel

I have absolute confidence that things will get better, the pandemic will fade, the US and the rest of the world will start making enough tests and masks, and ultimately the stock market will recover.  The only question is when.

If you believe, as I do, that the stock market is a good clearinghouse for national/global sentiment on how we’re doing with this pandemic, there is reason to be optimistic.  Since April stocks are up 3%, largely driven by yesterday when stocks were up over 7%.  Certainly that’s good news, and we all hope that new cases will start to decrease, recoveries will start to increase, and American industry will provide the tools to really finish all this coronavirus business.

Also, as this stretches out, it helps to better and better put what we’re going through into perspective.  It has now been almost seven weeks since we were at our stock market high (Feb 19).  Since then stocks have fallen 21%.  Any guesses how many times this has happened in the past . . . 17.  That seems like a lot.  In the past 100 years this has happened 17 times.  That’s about once every six years.  Of course, it’s not nearly that regular.  The Great Depression accounted for a lot as did the Great Recession, but still.

Also, as we start to stretch the time horizon out we start to see different periods of history that had similar stretches.  We have all the usual suspects: over half of those time periods were in the 1930s, plus one from the dot-com bubble (2002), one from 1987, and one from the Great Recession (2008). But now that we’ve been at this for almost 7 weeks we have a new member to the club: May 1970. 

The 1970s were a horrible decade for investing.  We had the Vietnam War, oil shocks, the Nixon resignation, sky-high inflation, an ineffectual Jimmy Carter.  There wasn’t any one event, but rather that decade was just a long grind of bad.

Let’s wrap this all up.  Back a few weeks ago the market was in total freefall and it was scary.  But after the initial onslaught things have stabilized.  In the past two weeks, the S&P 500 has traded in a fairly tight range (2400 to 2700), so things seem to have stabilized a bit.  Now it’s just turning out to be a bad market like the ones we get every generation or so.

Inherent in investing is risk.  The psychology of stock markets doesn’t allow the air to seem out of the balloon slowly.  Rather, it tends to favor a violent burst.  That’s what we’re going through right now. But I do think there is a light at the end of the tunnel.

Making predictions on the stock market it a great way to look stupid.  When we first started this, I thought we’d be at 3100 by the end of May.  That’s looking less and less likely, but I do think we’ll be at 3000 (down about 10% from our highs) but the time we celebrate the US’s 244rd birthday.  We’ll see if I’m right.

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