The Panic Low Was Ten Years Ago

One of the important aspects of financial markets is that they tend to be very boring and positive most of the time. Then, very suddenly, they’re very, very exciting and very, very bad for a very, very short period of time. It happens fast.

The market crash of 2008 is a good example. It was ten years ago tomorrow that the stock market reached what I call its “panic low.” I have to explain that I follow a slightly different chronology from convention.

I think it’s better to see the market blowup of 2008-2009 in three segments.

There was the “initial selloff” from October 9, 2007 to August 28, 2008. Then came the “panic phase” from August 29 to November 20, 2008. Finally, there was the “retest phase” from November 20 until March 9, 2009.

The initial selloff lasted 224 days and the S&P 500 lost 16.90% (in blue).

The panic phase lasted 59 days and the market lost 42.15% (in red)

The retest phase was 72 days and the market lost 10.09% (in green)

Others can quibble about precise starting and ending points, but I think my divisions are reasonable.

Officially, the bear market lasted exactly 17 months and the S&P 500 dropped 56.78%.

My point is that even within the parameters of a bear market, there was a much larger and more severe bear market. While the initial phase and retest phases were quite unpleasant, they’re a normal kind of unpleasant.

It’s the panic phase that’s so disquieting (note those performance figures I listed above). The panic phase saw a much bigger drop than the other two combined even though it lasted one-fifth the amount of time.

If you want to try and time the market, you need to be exceedingly precise because the window doesn’t last long. The crash often starts before it’s a news story, and it often ends before people are debating when it will all end.

Things were pretty dicey ten years ago, but it wasn’t a terrible time to go back into the market. Yes — even with another nasty drawdown at the start of 2009. In fact, the entirety of the loss during the retest phase came on its final seven days.

Posted by on November 19th, 2018 at 12:10 pm


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