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Analysis

March and October are Historically When Markets Crash

Pilot lost on Ice Hallucinating money

2020 March was a tease. For what? We might soon find out

There an odd tendency, it seems, among humans, to herd. Also another is to forget the past very quickly even or perhaps especially, if it is traumatic. Third, is to assume that whatever didn’t happen recently will, therefore, never happen.

And then there’s the bizarre political tradition of giving credit or blame to the current occupant of the White House for whatever macroeconomic trends happened to pass through during their tenure. Of course sometimes just claiming victory for any rising price in the stock market and assigning blame for any downturn works. You can always fool some of the people some of the time.

All of these quirky human traits seem to be converging (again) as 2021 drags itself fully into being.

Ah, hindsight. What a lovely thing. Also there’s another nice thing called history. It is typical, in articles written about the stock market, to become very technical with dates and prices and charts when it comes to historical patterns. That is a nice job and does lend an air of accuracy to all claims, boasts or predictions.

‘We believe that hindsight will show the champion of head-smacking craziness in the American stock market to be the period playing out right now.’

-billionaire Paul Singer of Elliott Management

However, taking into account the section above, regarding human psychology and deeply rooted traits and behaviors, doing that here would be, perhaps, a kind of overkill or non sequitur.

Obligatory stats and examples, with plenty more where these came from

Therefore, lets take a casual stroll down memory lane, if not history’s graveyard, and see what dates coincided with famous and infamous market crashes.

“On October 29, 1929, Black Tuesday hit Wall Street as investors traded some 16 million shares on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors.”

History.com

“The first contemporary global financial crisis unfolded on October 19, 1987, a day known as “Black Monday” when the Dow Jones Industrial Average dropped 22.6 percent.”

federalreservehistory.org

”In March of 2000, everything started to change. On March 10, the combined values of stocks on the NASDAQ was at $6.71 trillion; the crash began March 11. By March 30, the NASDAQ was valued at $6.02 trillion”

Time

In the chart above, notice how many of the largest losses in the Dow Jones Industrial Average occurred in March (and February). Although the 2008 crash is said to have kicked-off in Mid-September, along with the examples above, this also qualifies in the “October-March” axis as these are based on seasonal patterns, and the preponderance of September / October and February / March occurrences is so nearly all encompassing.

”The stock market crash of 2008 occurred on Sept. 29, 2008. The Dow Jones Industrial Average fell 777.68 points in intraday trading. Until the stock market crash of 2020, it was the largest point drop in history.”

The Balance

This leads us to the most recent crash; March 2020’s “temporary” reversal. Although this is different than the other historical instances listed above, as it was not the kick-off to a longer lasting bear market, it did have some pretty amazing stats.

For example, the S&P 500 dropped 30% in twenty-two days from February 19th on into March. This was the fastest 30% drop in it’s history, faster than the 30%+ drops that began in February of 1934, November of 1931 and September of 1929.

Although the drop was measured from the all time high reached on February 19th, the crash itself has been measured by other extreme days of losses, all of them in March.

Monday, March 9th was a crash, in that case winning the prize for history’s largest total point decline up to that date. On March 12th and 16th the record point plunge was bested again, respectively. Those days, all in March 2020, constitute, to the day of this writing, the three largest total point drops in U.S. History.

And that was with so-called “circuit breakers” engaged, in order to minimize one day losses.

Is anybody concerned even a little bit yet?

Given the current state of euphoria, brought on by Fed and government manipulation of the money supply and other emergency measures, very few are paying attention to March 2021 and its potential to join previous March market-crash-superstars of history.

Many reading this will jump to the conclusion that, since March 2020 was a “pandemic induced crash” and we are “near the end of the worst of the pandemic” that all of this historical data can be waved aside with the usual retort “this time is different”.

A very typical current headline will read something along the lines of: “The Market might See weakness in 10 to 24 months after huge rally continues”. In other words, the idea that anything like a crash could happen before the end of 2021 is rarely even considered.

This is due to the mistaken feeling that there is a guarantee that, first, the pandemic will soon end, or at least die down to more manageable levels, and that businesses will boom as a result of the removal of the pandemic as a negative factor.

This pre-supposes a connection between stock market prices and general overall business prosperity, with no time lag, and further a kind of immunity to the same idea when business are struggling (such as during the last 12 months).

Somehow, the nearly all pervasive feeling is that a booming (bubble) market is just fine, and will be inevitably be followed by an even bigger boom when the “rational” underlying “fundamentals” present a more fitting backdrop. Meanwhile, back in the realm of reality, irrational and herd based bubble-boom such as is currently ocurring has rarely been seen. And never without a subsequent crash.

Those aware of history would be wise to factor in the probability that the current generally accepted “wisdom” is little more than wishful fantasy shrouded in a veil of ignorance. And that March (or October) will more likely bring yet another surprise that “no one saw coming” simply because no one looked.

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