With the recent financial market’s turmoil and implications for the economy you can imagine the discussions I’ve been having. I recently told a friend that we’ve seen markets like this before. So, I decided to check on stock market corrections since I began my career over 33 years ago. Since 1992, there have been at least 7 periods where the S&P 500 experienced a decline of 20% or more.1 There have also been approximately 20 declines of 15% or more2 and the S&P 500 has experienced a 10% or more decline 25 times.3 As I told my friend, I’ve seen this movie before. He responded that we haven’t had a trade war like this. This comment reminded me of the famous Mark Twain quote, “History doesn’t repeat itself, but it often rhymes”.
As the news reported the dramatic increase in volatility, it certainly sounded familiar, so I checked. The VIX, a measure of stock market volatility and often referred to as the fear index, closed at 52.33 on April 9th.4 There have been only two occasions since 1992 where we’ve experienced a VIX higher than 50: during the Covid shutdown and the 2008 financial crisis.5 Having experienced those markets up close and personal I can attest they were scary.
If, however, we want to consider the crisis with the longest lasting negative effect on the S&P 500 index since 1992 we must consider the tech wreck of 2000 – 2002. The S&P 500 reached a peak of 1,527.46 on March 24, 2000, during the height of the dot-com bubble. It then fell to a low of 776.76 on October 9, 2002.6 That’s a drop of 49.14%! That was rough.
What I’ve taken away from those, rather painful experiences, is the importance of staying calm. We know there will be up markets and down. The time to plan for the up markets is when things are bad and the time to plan for bad markets are when things are good. The Chinese symbol for crisis is also the symbol for opportunity. During a crisis, it can be helpful to remember this. Baron Rothschild once declared, “the best time to invest is when there is blood in the streets”. However, most investors do not like to invest in the middle of a crisis.
While I have not experienced the uncertainty surrounding a potential trade war or a complete change in our way of trading, it does rhyme with my other experiences. Staying rational then markets are irrational is an approach we embrace. In my experience, investors who make decisions with their mind rather than their emotions, tend to come out on top.
Doug Lagerstrom
- https://www.investopedia.com/a-history-of-bear-markets-4582652?utm_source=chatgpt.com
- https://www.marketwatch.com/story/here-are-the-lessons-from-every-stock-market-correction-since-1973-according-to-goldman-sachs-721a9fef?utm_source=chatgpt.com
- https://www.commonfinancialsense.com/a-short-history-of-sp-500-declines/?utm_source=chatgpt.com
- https://chatgpt.com/?
- https://www.marketwatch.com/story/wall-streets-fear-gauge-soars-to-a-rare-crisis-level-what-that-means-for-stocks-56605852?utm_source=chatgpt.com
6.https://chatgpt.com/?utm_source=google&utm_medium=paidsearch_brand&utm_campaign=DEPT_SEM_Google_Brand_Acquisition_NAMER_US_Consumer_CPA_BAU_Mix&utm_term=chatgpt&gad_source=1&gbraid=0AAAAA-IW-UXHNkl1Xhx1PE_OYJsXuBuHX&gclid=EAIaIQobChMIv4_W5tzajAMVWydECB2O5Br_EAAYASAAEgLJ7vD_BwE