Special Memo: Stock Price Declines of March 9th, 11th, and 12th, 2020

Sam Ngooi Comments

On March 9th, and then again on March 11th and 12th, all three major US stock indexes experienced serious declines.  When measured from their recent mid-February highs, the three indexes are down between 27% and 28%, which means all three are now officially in a “bear market.” The spread of the coronavirus and its feared health and economic impacts appears to be driving these declines.  Taking a modestly longer view than day-to-day, the chart below shows the performance of these indexes at various points from President Trump’s November 2016 election through March 12th, 2020.  From the 2016 election close, all indexes are still reporting at least some gains.  Note the huge gains from the Q4 2018 lows to the end of 2019; also how those gains have been mostly, if not all, reduced through March 12th.

  S&P 500 % DOW Jones % NASDAQ %
Election Day Close 11/8/16, Base 2,163   18,590   5,163  
Q4 2018 Lows 2,351 +8.7% 21,792 +17.2% 6,193 +19.9%
Year-End 2019 3,231 +49.4% 28,538 +53.5% 8,973 +73.8%
March 12, 2020 Close 2,481 +14.7% 21,201 +14.0% 7,202 +39.5%

As we have written many times previously, the long-term overall gains in stock prices come with the risk of periods of significant declines.  No one is promised that the high for stock prices will be their particular exit point.  Please refer to our Feb 27th Special Comments for some longer-term information on the number of corrections (down 10%) and bear markets (down 20%), since 1945. Those same Special Comments referenced a New York Times article by Ron Lieber advising people with long term investment goals to focus on the long-term and try and avoid taking action based on short-term fluctuations. Lieber wrote again on the same subject (NYT 03/10/20, page B4) as follows: “Current stock market activity, driven in part by out of control algorithms and professional traders with wildly different goals from every day investors like you… Have your long-term goals changed today?  If not, there is probably no reason for your investments to change either… Your actual asset allocation may mean that the declines in your portfolio aren’t as bad as those flashing red numbers.”  Also, allocations to bonds should provide ample money for short-term needs, so stock allocations need not be disturbed during times like these.

To conclude, we do not know when these declines will stop, and at what prices, and how long a recovery might take. That said, we do continue our advocacy of appropriate allocations both to and away from stocks, and a long-term time horizon when considering what that allocation should be.  Please feel free to contact your advisor to discuss, and take care.