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The Millennials Black Monday March 16th 2020

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Strategy of the Day 3.17.2020

March 16th, 2020 The Millennials Black Monday

Over the last decade, I have tracked an analogue price comparison between the post 1970s recession price action of the S&P 500 (chart A) and today I wanted to take my article in a different direction. The long story short, is that its been fascinating to observe a near perfect repeat of history, only with a 10x multiple to price (even the timeframes line up within reason). The rough storyline begins when the S&P 500 index peaked at what was then all-time (generational) highs of 121 in 1973. Following that peak, the market lost 50% of its value in a deep recession that lasted until the lows of 60 in 1974 (grey box in lower left of chart A). Over the next 13 years, the S&P 500 experienced its largest bull run in history, peaking at 340 in August of 1987. The following 4 weeks resulted in the largest single day sell off, and one of the most violent times in modern market history. Monday, October 19th would be forever known as Black Monday with the S&P 500 trading down almost 30% that day alone and was the bulk of the damage done to the charts for the whole decline. The lows were put in place at 220, a 120 point drop off the highs. From the Black Monday 220 lows (which were a 50% Fibonacci retracement of the rally from recession lows), it took 2 years for the market to recover back and through new all-time highs, and 4 years to press on through -23.6% Fibonacci projection targets at 400.

Flash forward one generation to the 2000s (chart B), and you simply multiple the prices from 1970s through 19902 by 10x to get an almost exact repeat in both time and price. Even the behavior of the 50 month and 200 month moving averages were identical following a period after each recession; these two moving averages failed to death cross (1978 and 2012), an event that has not occurred since the Great Depression. The 1973 high of 121 correlates with the 2007 highs of nearly 1570; while the recession lows of 60 in 1974 correlates with the 2009 low of 670. The all time high before the 1987 Black Monday was at 340 and correlates with the almost 3400 high before the 2020 Black Monday.

There were some major differences in the economies from which these markets derived, as interest rates were literally at opposites (all-time highs then, near lows now) during these periods. To offset this difference, and make things comparable, the global value of the USD was also dramatically different (far weaker than it is today), meaning that the failure to overlay interest rates during these periods may be irrelevant. The FED has a strong USD that can be vastly devalued, a measure that analysts seem to never talk about. I often hear people mention that they FED cannot lower interest rates future (and that is true there is a floor there at 0); but you should never underestimate the FEDs ability to create additional USD supply through other facilities and open market measures (and if forced to, how quickly they can covert USD strength into price inflation). That is where the differences end.

In 1987, the catalyst for the selloff was less than tangible and based more on the fear that markets had gone too far in a period of debt expansion (sound familiar to the wall of worry that 2019 market climbed?). This fear caused systemic panic, in a period where it was rumored a banking contagion COULD (not would, was, or is, but COULD) spread from one institution to the next leading to a widespread shutdown of the global financial system. Most people didnt understand what they were afraid of, and 20:20 hindsight suggests there was nothing to fear at all; only the perception that the end could be near and our inability to be prepared for it was driving the mass selloff. While the outbreak of COVID-19 and the fear of an epidemic should absolutely be taken seriously, it is however important to do so within some realm of context and reality. I am not interested in arguing the long term fear of an economic slowdown from the quarantine and boarder shut downs, I am only intending to point out that its the fear of what COULD happen that has driven this sell off as well. If history has taught us anything, its that humans have survived ever other pandemic we as a species have encountered, and this one is no different. COVID-19 is a threat to a specific demographic, and we should do everything in our power to protect those at high risk; however, for the rest of us its high time we wash our hands of the fear of COVID-19 and take a hard look at the bigger picture.

The silver lining in all of this: what does not kill us, makes us stronger. After Black Monday 1987, markets instituted rules to better protect investor equity, and banking laws included reforms to encourage lower risk taking in the fixed income markets. When the world stopped being afraid of the unknown, it was followed by the greatest bull market in history (until the 2018-2019 run). Nothing to fear but fear itself Keep calm, carry on Level heads will prevail Netflix and chill. When the Great Siesta is over, and the world wakes up from its nap, what will there be to be afraid of?

Dan can be reached at (312)277-0110,, or on twitter @DanielHusseyJr with any question or further comments. You can click here to get access to the Zaner Hedge daily newsletter to receive his emailed commentary daily!

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Chart A 1970-1990 S&P 500 Cash Index

Chart B 2000-2020 S&P 500 Cash Index

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About the author

Dan began his career in 2006 as an arbitrage and clearing clerk for Spyglass Options in the Eurodollar futures options pit on the floor of the Chicago Mercantile Exchange. Taking his employing brokers advice, Dan soon left the floor to pursue a career “behind the screens upstairs”, as there was an inherent lack of opportunity for market making in open outcry pits. After graduating from the University of Notre Dame in 2009 (and for the subsequent 10 years), Dan leveraged his IT background in networking and computer programing to begin developing computerized trading algorithms and trading systems for multiple private equity firms and his own account. He eventually found his specialization in trading carry trade dynamics in currency and interest rate futures; while simultaneously building his experience in trading both inter-market and intra-market spreads. His trading experience later expanded to include most commodity spreads, with an emphasis on carry trade economics in agricultural commodities. In 2016 Dan decided to take his career full circle by becoming a series 3 and 34 licensed broker; and expanded his outreach to the agriculture production community. In 2018, he joined Zaner Financial Services Ag Hedge division, bringing his knowledge and expertise of carry trade economics and continues expanding exposure to spread markets. Dan can be reached at (312)277-0110 by phone, @DanielHusseyJr on twitter, @DanSOTD on facebook, and emailed at
Contributing author since 2/15/2019 

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