March 2020 was the wildest month in stock market history. The difference to other meltdowns was the speed and whipsawed action of the move. This stock market drop was incredible fast and volatile. To sum the situation up and to get a perspective for the speed of the drop:
Historically, on average, it has taken 255 days for the market to go down 20% from a peak (20% down is, the definition of a bear market). This time, it took just 20 days, which is less than 8% the time of the historic norm. Even the 20% stock market crash of 1929, known as “The Great Crash,” took 36 days. That is nearly double as long as the March 2020 crash.
Even though the market in March 2020 went down at record pace, the swings upward during the month were equally extreme. One day it went down big, the next day it went up big and then it went down even bigger again. Amazing how far down we went considering how many massively positive days there were. There is nothing in stock market history that even comes close.
Adding the 22 trading days of March 2020 results in a cumulative percentage change of 117%. That is an average daily change of 5.3%! The next wildest month in history was October 2008, which had an average daily change of 3.8%.
But what should we do now?
Do not try to predict the market. Leave that to others! We do not know, if the stock market has now bottomed and that we’ll go further up from here, after a significant correction from the low. The reality is that you need a diversified investment portfolio over time and then hold that portfolio for the long term. Prepare yourself for the fact that the next few weeks and months are going to be tough. So far, the virus pandemic was at the frontline but once we have a clearer picture, the damage done to the economy takes over. The market could very well go lower. we can also go sideways for a while, but centuries and tons of data show that there should be an end to the tunnel at some time. So far, and the data proves it, the stock market trend in the long term is up.
Sven Franssen