by Gary Alexander

June 30, 2020

In over 50 years of watching and writing about markets – and 60+ years of following the news – I can’t remember a year so eventful, in just half a year. We’ve seen three or four years’ worth of crises already.

Just in brief:

  • In January and early February, there was an acrimonious Impeachment of President Trump.
  • February 19 to March 23 brought a 35% market decline in just five weeks over coronavirus fears.
  • March 23 to May 25 delivered a near-50% market recovery, despite a national “lockdown.”
  • Then, May 25 to the present elicited national protests and urban riots, defying that lockdown.

Nationally, we have been myopic (short-sighted) during the entire 2020 first half. Specifically, there was a major virus brewing in China in January, but nobody in Washington, Wall Street, or the news media paid much attention because of the brouhaha over some Ukrainian phone call the previous July. The first wave of coronavirus cases escaped China to Europe and America in late February, switching our attention for the first time to the virus that would dominate our attention over the next four months, except for June.

Over the Memorial Day weekend, as usual, I watched the “2020 National Memorial Day Concert” on the National Mall on TV, but there was no concert that Sunday, May 24, due to social distancing. Still, hosts Joe Mantegna and Gary Sinise delivered inspiring presentations from previous years about U.S. soldiers showing great valor in times past. All that glory was erased on Memorial Day, June 25, when a vicious police officer in Minneapolis choked the life out of George Floyd and sent the nation into an outrage of protests with virtually no social distancing or face coverings, soon devolving into looting and destruction.

We have been a nation at war all year, and that war promises to intensify as the elections approach. The coronavirus attack felt like a Pearl Harbor – even worse than 9/11, in that it tanked our financial markets and forced us into a recession. On Sunday, March 15 – the Ides of March – the Federal Reserve cut key interest rates to near-zero to save the nation and the market, but the market didn’t get the memo: The next day, the Dow lost a record 2,997 points and the volatility index (VIX) hit an all-time closing high of 82.7.

The S&P 500 fell 35% in 23 trading days, but then the equivalent of our first “victory” (like Midway, six months after Pearl Harbor) was on Monday, March 23, when the market bottomed as the Fed laid out a more balanced battle plan of carpet-bombing the nation with cash. In a plan dubbed “QE4-EVER,” they committed to buying U.S. Treasuries and mortgage-backed securities (MBS) “without limits” and without an ending date. They also established two massive new facilities to support credit to large employers.

Standard and Poor's 500 Total Return Level % Change Chart

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

The Fed’s action turned the market around on a dime – the Dow rose over 20% in three days and 50% by early June. NASDAQ reached a new all-time high. But this was just another case of market myopia. The market assumed all this money would bring recovery in the third quarter, but they did not account for the return of the virus, nor a violent revolution against American business, history, and public discourse.

Memorial Day, Flag Day (June 14), and now July 4th are arriving without respect or fanfare, as cities are being torched without even token resistance as we head into a second half – and a key election decision.

For Far-Sighted Vision, Review these “Spring Surprises” of Previous Decade-Beginnings

This is the worst six months I’ve seen in 50 years – comparable to the 1968-74 time of riots, pandemics, space shots, assassinations, Vietnam, and Watergate – but whether it becomes worse, only time will tell.

If we look at the birth pangs of previous decades in the last century, maybe we can start to relax a trifle. It seems like there was a bit of “revolution in the air” every time the third digit in the calendar year changed.

As I wrote last January here, 1920 began with a bang. On January 2, 1920, Attorney General A. Mitchell Palmer arrested 4,000 left-wing radicals, mostly immigrants, in the “Palmer Raids.” It was part of the “Red Scare” of that era, and the press supported it. The Washington Post said: “There is no time to waste on hair-splitting over infringement of liberty.” And you thought immigration was controversial today?

Mid-January 1920 was also the birth of alcoholic Prohibition. At 12:01 am January 17, 1920, prohibition officially took effect. Later that year, women got the right to vote nationally, for the first time. On Wall Street, however, the Dow lost 33% in 1920, the fourth worst year of the 20th century (behind 1907, 1930, and 1931). Later, the 1920s delivered huge gains of nearly 500% in eight years, but the decade began with a recession starting in January 1920. The Department of Commerce claimed the GDP declined 6.9%.

In short, 1920 included a Red Scare, anti-immigrant raids, the dawn of Prohibition, the tail end of a flu pandemic, a 33% Dow decline, a severe recession, and election of a corrupt President, Warren Harding.

This year isn’t so bad if you compare it with 1920. The 20s certainly weren’t Roaring yet in 1920.

Subsequent decades also opened with big shocks, usually falling in May or June:

On June 17, 1930, President Herbert Hoover signed the controversial Smoot-Hawley Tariff bill, which raised duties on imports to astronomical heights, in hopes of promoting American-made goods. A month before Hoover signed the Bill, over 1,000 economists signed a petition protesting the tariff. Their fears were well founded, as foreign nations retaliated by enacting their own tariffs or quotas, and global trade dried up. The Dow fell 11% that week, from 250 to 222. The Dow would not reach 250 again for over 20 years. This trade bill created the worst June of the century, with the Dow falling 17.7%, from 275 to 226.

Dow Jones Industrial Average Chart

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

On Sunday, May 12, 1940, Germany invaded Belgium and Holland. In the next week, May 13-17, 1940, the Dow Jones index fell 20.57 points (-14.2%), the second worst week in percentage terms, second only to July 1933. For all of 1940, only 207.6 million shares traded on the New York Stock Exchange.

Hitler's Effect on the Dow Jones Industrial Average Chart

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

On Sunday, June 25, 1950, at dawn, 200,000 North Korean troops stormed into South Korea. The next day, the Dow fell a staggering 4.7% (-10.44 points), to 213.91, the largest one-day drop since 1937, and the worst single-day decline we would see until 1962. For the week of June 26-30, 1950, the Dow fell 15.24 points (6.8%), to 209.11, the worst weekly drop since the 1930s – but the market quickly recovered.

On Sunday, May 1, 1960, U-2 pilot Gary Powers was shot down over the Soviet Union, wrecking the summit planned for Paris on May 15. It was another bad year for stocks, as the Dow peaked for the year on January 5, 1960 at 685.47 and fell 17.4% by October 25, right before the Kennedy-Nixon elections.

The 20th Century had seven down years ending in a zero, and three up years, averaging an 8% decline.

Up and Down Years of the Dow Jones Industrial Average Table

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

On Monday, May 4, 1970, Ohio National Guardsmen shot into a group of demonstrators on the Kent State University campus, killing four and wounding eight. Students were protesting the U.S. invasion of Cambodia on April 30. Without firing a warning shot, 28 Guardsmen shot off 60 rounds into the mass of gathered students. It was near the middle of the tech stock crash of 1970. The S&P 500 fell 9% in April 1970, another 6% in May, and 5% in June, for a cumulative 19% drop in the second quarter of 1970.

Standard and Poor's 500 Forgotten Bear Market Chart

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

On Sunday, May 18, 1980, Mount St. Helens, Washington, exploded, blowing its top and thrusting a cubic mile of earth and ash into the air, blanketing much of the nation. That night and the next day, 18 died in race riots in Miami, the worst the nation had seen since the late 1960s. This was all in the midst of high inflation, economic stagnation, a silver price collapse, hostage crisis, and the Reagan/Carter elections.

On Tuesday, June 26, 1990, President George Bush promoted his “tax revenue increases,” thereby telling the nation he would soon renege on his famous campaign promise, “Read my lips: No new taxes.”  His timing couldn’t have been worse. The U.S. was entering its only recession of the 17-year market boom (1983-2000); Saddam Hussein was about to invade Kuwait, and the stock market was nearly 3000 on the Dow. Soon after Bush’s U-turn on raising taxes, the Dow fell by over 20% in the third quarter of 1990.

On Monday, April 10, 2000, NASDAQ fell 258.25 points (-5.8%), while the Dow Jones index rose by 75 points. It was the start of the “dot-com bubble” bursting, even while the Dow and S&P were fairly stable. In the week of April 10-14, NASDAQ fell 1225 points (-27.6%) to 3221.29, in five daily giant steps.

The main lesson here is that big things happen in first year of the decade, especially in May and June, and we can often suffer down years in “0” years. We also need to avoid being trapped in the momentary news cycle, which hypes today’s problems, since the market generally trades on tomorrow’s best opportunities.

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

Please see important disclosures below.

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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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