by Gary Alexander

March 3, 2020

The headlines and comments I heard last week almost all dealt in superlatives…the “worst” this and that.

A couple of examples:

“Dow plunges 1,100, worst point drop in history”

–CNBC Headline, February 27, 2020

“Three of the Dow’s five worst days in history happened this week.”

– Tucker Carlson, Fox News, February 28, 2020

The problem with this reporting is that they deal in absolute numbers – Dow points, in this case – rather than percentage declines, and they deal in short time frames (like a week) rather than a longer perspective.

While Thursday’s 1,190.95 Dow point drop was narrowly the worst point drop in history, the decline was only 4.42%. As most casual market historians know, the Dow collapsed by over 22% on October 19, 1987 – about five times as much in percentage terms. There have been 20 daily Dow declines over 7%.

This market decline has been sharp – about 15% in barely seven trading days – but sharp declines have happened several times during this 11-year bull market (its 11th birthday comes next Friday). You seldom hear this kind of historical perspective from the major media. They always scream that this is “the worst day since…” rather than say, “This has happened before, and the market recovered within a few months.”

There are a few sane sources out there – market professionals with smaller followings of smart investors bucking the mass media, which lures the public into hysterical over-reaction. Pros like Yardeni Research and Bespoke Investment Group are always quick to remind their clients that we have been here before.

Here are a few important historical perspectives:

Market Corrections since World War II Bar Chart

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

There have been 26 market corrections (not including last Thursday) since World War II, with an average decline of 13.7%. Recoveries have taken four months on average. The most recent correction occurred from September 2018 to December 2018, when the market fell almost 20%. According to Ed Yardeni, there have been six 10%+ corrections during this bull market – two of them falling over 19% in the S&P 500 – and two other corrections, which almost topped 10%, reaching a total decline of 9.8% and 9.9%.

Market Corrections During This Current Bull Market Table

Most of the sharpest market declines in market history happened because stocks rose too far too fast, and a narcotic euphoria set in. The chatter was that “this time is different” or “stocks will keep rising forever.” That happened in 1928-29, in 1986-87, when stocks rose 50% in just 10 months, and in 1998-2000.

In the last 14 months, from December 24, 2018 to February 17, 2020, the S&P 500 shot up 44% and NASDAQ rose an unsustainable 59%. The market was long overdue for a correction – as Jason Bodner and Louis Navellier have clearly been warning, relentlessly repeating that this market was “overbought.”

The S&P 500 declined 11.5% last week. Bespoke shows how the S&P has performed in the weeks and months after all weekly drops of over 10%. There have been 14 such massive weekly declines. Bespoke found that the index has averaged a gain of 3.53% in the following week, with positive returns in 12 out of the 14 previous times. Over the next four weeks, the S&P averaged a gain of 2.92% (with a median gain of +4.1%), and over the next three months, the S&P 500 has rallied by an average of 5.61%. Most importantly, the S&P was up an average 12.52% 12 months after any weekly decline of 10% or more.

What You Should Do Now: Refuse to Panic!

I have been investing for over 50 years and I am ashamed to say that I panicked and sold my first stock investment during the crisis of 1974. I sold at the worst possible time. I also sold my retirement portfolio in 1979, when I thought the market was doomed. I bought gold instead. In short, I made a lot of mistakes.

Around 1990, I made a “buy and hold” resolution, and that has made all the difference in my life, and in the success of my family. I was immediately tested as the Dow fell 21% from nearly 3000 in July 1990 to 2365 in October following Saddam Hussein’s invasion of Kuwait. Tokyo stocks had already fallen 48% in nine months, and there was a savings & loan crisis brewing. At October’s New Orleans Investment Conference, I moderated a “bull vs. bear” panel and by a show of hands, only two of the 500 investors in the audience were bullish on stocks. Yet I held firm and the Dow is up over 10-fold since October 1990.

Tokyo Nikkei Index Chart

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

Pundits in 1990 were warning about the Coming Crash and Greater Depression. They were right, sort of, but they got their geography wrong. The Crash and Depression happened in Japan, not the United States.

In 1994, I formed a self-help group of recovering doomsday writers and speakers. I called the group “Apocaholics Anonymous,” a mythical band of brothers who refused to spread panic or sell stocks when the media urge us to press the panic button. There was a lot of temptation to sell stocks in 1994, what with Fed chair Greenspan’s six rate increases, “Hillary care” in the White House, the peso crisis, and Orange County bankruptcy, but I held firm, and the Dow is up about 7-fold since 1994. Since then, we’ve seen 10 or more threats of global epidemics, 10 or more market crashes, 9/11, wars and nuclear threats, some bad Presidents and bickering Congresses, yet stocks just keep on rising. I’ve seen my portfolio fall sharply in 2000, 2002, and 2008, but the market recovered rapidly, and it will likely rise after this correction, too.

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
Ultra-Low Treasury Yields are a “Screaming Buy” for Stocks

Income Mail by Bryan Perry
Power Play for Income Makes Perfect Sense

Growth Mail by Gary Alexander
The Media Make Bad News Sound Worse

Global Mail by Ivan Martchev
A Hitchhiker’s Guide to Coronavirus

Sector Spotlight by Jason Bodner
Panic Selling Rocks Markets…What to Do Next

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

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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