by Gary Alexander

March 23, 2021

ARE WE ABOUT TO POP? Bubble, bubbles everywhere – so say an increasing number of Wall Street professionals, who see the lofty prices of everything from equities to Bitcoin, from new homes to soaring values of newly public companies, as clear signs that the financial system is again on the verge of a major reset similar to what happened in 2000 and 2008…” – Time Magazine, March 29-April 5, 2021

Is another crash coming? The scars of 1987, 2000, 2008 and last year are seared into our consciousness for the traumatic losses they brought. But now that we have seen 80% gains from last year’s lows, let’s take a rational look at the age-old question: Which is more rewarding in the long run: Totally avoiding each and every one of those market meltdowns, or risking missing out on the market meltups that follow?

Putting the question more precisely: Are we better off riding through all the major market storms fully invested, or trying to guess the market tops through “market timing,” by selling a major portion of our portfolio when we think markets are near their top – and then re-investing all our chips near the bottom?

After all, if you’re a market timer, you’ve got to get both sides of the equation right, because the rise from the bottom can be just as rapid and paralyzing as the dizzying fall from the top.

The rapid rise during this week last year (March 23-27, 2020) proves my point.

Standard and Poor's 500 Cumulative Return Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

On Monday, March 23, 2020, the S&P 500 bottomed at 2,191.86 and closed at 2,237.40. The next day, the S&P gained over 200 points (+10% from its low), rising 20% in three days and about 80% overall.

 Date (2020)  Low  Close  Gain from Low
 Monday, March 23  2,191.86  2,237.40  +2.08%
 Tuesday, March 24  2,447.33  +11.66%
 Wednesday, March 25  2,475.56  +12.94%
 Thursday, March 26  2,630.07  +20.00% in 3+ days
 Data source: Yahoo Finance

The recovery was so rapid and unexpected that if you didn’t buy stocks late Monday or early Tuesday, you were left in the dust waiting for a convenient entry point that never arrived. This is true of most of the major recoveries in stock market history. Investors seldom have time to get on board near the lows.

  • At the bottom of the Great Depression, the Dow hit its post-1907 low of 41.22 on July 8, 1932. The next week, it rose 10.3%, but that was just the beginning, as the Dow rose over 80% in the seven weeks from July 8 to August 26, 1932. In all, it rose almost five-fold the next 4.6 years.
  • In 1974, after the worst post-war market crash to that date, the Dow reached its lowest point of the last 58 years on December 5, at 577.60. The Dow then gained 48% in the next five months.
  • On Friday, August 13, 1982, the bear market seemed to be going on forever, but all of a sudden, the market reversed, and shot up like a 4th of July rocket. The next Tuesday (the 17th), the Dow shot up 38.31 points (+5%), the fifth largest daily gain since 1950 (by percent), and the largest single daily gain by points to that date. For the week of August 16-20, 1982, the Dow rose over 10% (81 points), the second-best week from 1940 to date. The Dow then rose 5-fold in five years.
  • After the October 19, 1987 crash, October 21, was the largest one-day percentage gain since 1933, by a wide margin and three of the four biggest daily gains of the late 20th century came in a 10-day spurt:

Tuesday, October 20:         +102.27 (+5.9%)
Wednesday, October 21:   +186.84 (+10.1%)
Thursday, October 29:        +91.51 (+5.0%)
(All data in this section and the next comes from The Almanac Investor)

Up Close and Personal with Some 1990s Crash Warnings

In addition to my 24-year affiliation with Louis Navellier, I have worked with many other advisors and newsletter editors over the last 40 years. I’ve heard many dire warnings about the “crash to come,” most of which never came. When the New Orleans Investment Conference (NOIC) assembled in October 1990, the Dow was down almost 20% after Saddam Hussein’s invasion of Kuwait, a doubling of oil prices and the expectation of a much larger stock market crash and oil crisis once a hot war broke out in Iraq.

When we gathered, I hosted the popular Bull vs. Bear panel to an overflow session of 500 attendees. By a poll, both before and after, there were only two bulls for stocks, yet the Dow had bottomed at 2365. On January 16, 1991, when the Persian Gulf war finally broke out, the Dow broke through 2500 and rose 115 points (4.5%) the next day, then 20% in the following six weeks, rising from 2500 to 3000 on the Dow.

In 1996, I was editing a financial newsletter written by a noted market timer who had predicted the 1987 crash and other corrections. She promised to send out her warning when she saw a correction coming, and that warning came on July 23, 1996, a day on which the Dow fell 44.39 points, the third consecutive day of 35+ point declines, totaling 117.63 points in three days (over 2%). However, the market began rallying the next day and a year later was up 50% (to 8000+) and up 100% by 1999. That newsletter soon died.

A better outcome happened during the week of October 5-9, 1998, when another newsletter editor and I were hosting a Swiss seminar in Grindelwald and the stock market was tailing off, as it had in 1990, and our 60+ investors were very concerned. There was little internet service, but our morning Herald Tribune was bringing sinking stock prices to our attention. The S&P 500 had declined 19% since mid-July due to the LTCM hedge fund crisis, but this editor was a long-term bull who told these nervous investors that he seldom invested on margin, but he had done so that morning since this felt like “a time of irrational fear.”

That turned out to be the case, as the S&P 500 rose 2.6% that Friday and was up 24.3% by Thanksgiving.

I could continue these examples into the new century, but I’m running out of space and time (and maybe your patience). The 2003 Gulf War II was an instant replay of the Gulf War I, with the invasion of Iraq fueling a quick 15% two-month rally in the S&P 500 from April 16 to June 16, 2003, and the March 2009 recovery was also lickety-split (up 37% in two months and +71% in the first year, in the S&P 500).

Overall, the recovery from the Great Recession was 84% in stocks within two years, about double normal.

Standard and Poor's 500 Recession Recovery Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

And the average recovery isn’t so bad, at +42% on the S&P 500 within two years.

In conclusion, I’ll admit I rode out 1987, 2000, 2002, 2008 and 2020 – fully invested. My average holding period is maybe 10 years. I study the best minds and make my own decisions. I save up money to add new positions. I sell when I need money. My only recent regret is that I listened to a broker who advised me to sell my Disney (DIS) last April at about $100. It’s now $191. I hate trying to guess market tops! *

So please join me in Apocaholics Anonymous, and our sub-chapter, Former Market Timers Anonymous.

Navellier & Associates does not own Disney (DIS) in managed accounts. Gary Alexander does not own Disney (DIS) personally.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Inflation Fears Continue to Mount

Income Mail by Bryan Perry
Corporate Investment in Tech is Set to Surge In 2021

Growth Mail by Gary Alexander
Which is Scarier – A Market Meltdown, or a Melt-Up?

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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