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Making Sense of Historic Volatility

Market moves since the onset of COVID-19 have been unprecedented, and there is certainly no precedent for the majority of the global economy coming to a sudden stop in response to a pandemic.  To highlight how historic the market volatility has been, here are a few market events that have occurred in the last month alone:

  • The S&P 500 just experienced the fastest bear market (>20% decline) in its history from February 19th through March 12th or just 16 trading days. The previous record was 30 days in 1929.
  • It also had the fastest decline of 30% or more, which took just 22 trading days through March 20th.  Previous record was also from the Great Depression.
  • The S&P 500 moved up or down by at least 4% for 8 consecutive trading days ending March 18th, or the most in history. Previous record of 6 occurred in 1929.
  • Two of the 6 worst daily % declines in history just recently occurred on March 12th (-9.5%) and March 16th (-12%). The others were related to two other historic market events: the crash of 1987 and the Great Depression.
  • The S&P 500 just had the biggest 3-day rally (+17.5% through March 26th) in its history.

Market volatility of this nature is certainly historic and highlights the amount of uncertainty that has come as a result of COVID-19.  Given the amount of unknowns that are still out there, it wouldn’t be surprising to see continued volatility.  There are unknowns about viability of treatments, the development of a vaccine, how this will affect supply chains and consumers, how businesses and individuals will behave once they’re eventually able to conduct business as normal, and on and on. So any projection of what numbers like GDP, unemployment, or corporate earnings will look like in the time of a global pandemic and social distancing (not a term I’d think we’d all be using when 2020 began) would be extremely difficult to forecast due to the amount of these unknowns.  Even more difficult would be trying to project how or when markets will ultimately reach their bottom.

However there is reason for optimism despite the constant barrage of headlines that seem designed to stoke fear and panic.  When we’re in the middle of a historic selloff like this one, it’s human nature to be a bit in shock especially when watching daily market moves and headlines.  But it’s important to remember that we’ve gone on to recover from every severe downturn that has been caused by an exogenous shock like COVID-19, and sharp selloffs similar to what we’ve just experienced have historically presented terrific buying opportunities for long-term investors.

There are two charts below that I think are extremely useful in demonstrating the historical context of both market volatility and bear markets to clients who are feeling uneasy about the headlines and volatility we’re seeing.   One is a chart from JP Morgan, which shows calendar year returns for the S&P 500 going back 40 years to 1980, along with the largest intra-year declines in each of those years.  The 2nd is a graphical representation of the history of Bull & Bear markets going back to 1929 with the duration in years, cumulative total return %, and annualized return % for each.

They both offer a graphical demonstration that markets can at times be violently volatile like they are now, but they are also on an uptrend in most years (positive in 30 of the last 40 years) and have gone on to recover from every bear market in history.  These basic market truths are certainly not what makes the headlines at a time like this, but they do offer a reason for optimism for long-term investors and support for sticking with a plan.

Andrew Gibson, CFA

Investment Officer / Vice President





The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.  FSTC does not offer tax or legal advice, professional counsel should be sought for tax or legal advice.

Andrew Gibson, CFA
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