Date: March 13, 2020

No Adjectives to Describe. Generational?

The collapse in the financial markets this week has certainly been historic and epic. It has been on par with the moves we saw in 2008 and 1987 in terms of underlying carnage. The difference here is that it started from an all-time high only one month ago, something that we have never seen before in history. It also began without the usual crumbling foundation of the stock market, something I will write about next week.

After Thursday’s whopping decline, the market remains in need of stability to begin to stem the downside. While looking at pre-market futures being up 5% as a sigh of relief, the usual scenario from there sees sellers coming in during the morning with an opportunity to stabilize and rally later today. While I usually discuss how it’s good to look for leaders and laggards during the first rally off a bottom, I don’t think that’s the case just yet. That time will come sooner than later after the bottoming process officially begins. We don’t have confirmation of that just yet.

When the bottoming process does begin, the odds heavily favor it being very complex and volatile. There should be multiple 10% rallies and declines to create a range. The big question will be the length of the process. In 2008, it began in October and ended in early March. In 1987, it began in October and ended in early December. Adding in 2018, there was no bottoming process at all. Stocks just soared in rare “V” fashion. In 2011, the began in August and ended in October. After the Dotcom burst, the bottoming process went from July 2002 to October. In 1998, it was August to October, the same as 1990. Because of the compressed moves we have seen since 2009, I won’t be surprised if the bottoming process is quicker, but we will have to see how it unfolds.

Over the last few days, I keep making lists of all the truly historic extremes in the markets to share with you. First, there was what I thought was the internal or momentum low on February 28. Then it became March 9. Today, it looks like March 12. Each of those three days have certainly qualified for seeing peak downside momentum at that time. And on each of those days, my list of extremes grew longer.

The financial market collapse has been generational. That’s the only word I can find that makes sense. However, 2008 was also generational and that was only 12 years ago. I am sure many people will claim the 2020 decline was so easy to forecast with the benefit of hindsight. I know that’s not something I will ever say.


Paul Schatz, President, Heritage Capital