How Today's Visceral Stock Market Fear Feels Versus History

The market has met other historic events with volatility. Perhaps understanding what some of those episodes felt like can help deal with today’s market angst.

The market has met other historic events with volatility. Perhaps understanding what some of those episodes felt like can help deal with today’s market angst.

Recent trading action feels unprecedented. Visceral fear is reigning in markets as Covid-19 coronavirus spreads around the globe. Every call for calm appears either ill-timed or ill-informed.

The market has met other historic events with extreme volatility. Perhaps understanding the visceral reaction to those events can help deal with today’s market angst.

Angst might be an understatement. The Dow Jones Industrial Average dropped more than 4,000 points, or 17.3% for the week, making it the worst week since 2008. The S&P 500 had its worst week since 2008 too, dropping 15%.

The Dow is off about 25% for March and 33% for the year. The same numbers for the S&P 500 are 22% and 29% respectively.

I’ve had the fortune—it doesn’t feel like good fortune at the moment—to have been on Wall Street since the tail end of the bust. Subsequent to that historic drop, the market has gone through 9/11, the financial crisis, the European debt crisis and the flash crash.

Right now, the coronavirus-induced market meltdown feels like a combination of 9/11 and the financial crisis.

Comparing anything to 9/11—as an adopted New Yorker—feels uncomfortable. But there are a few parallels worth noting. After the attacks, the city stopped functioning for a while. The day of the attacks, lights changed from red to green, but cars didn’t move. Cell service was spotty and everyone wanted to be outside, feeling safer in the open air.

The similarity between then and now is the fear wasn’t financial. It was something ethereal. Today, investors don’t know how the viral pandemic will proceed or when life will get back to normal. The uncertainty is dominating all other thoughts.

After 9/11 the market stayed closed for four straight trading days. If the trading halt wasn’t unprecedented, it is difficult to find another historical example of that long of a pause.

The NYSE likes to be open the day after Thanksgiving so it doesn’t stay closed for four straight calendar days. Price discovery—aided by continuous markets—is an important part of capital markets.

When the market reopened for trading after 9/11 it dropped for five straight days, falling more than 8%.

I happened to be in the Atlanta airport Monday. The terminal is nearly empty. There are masks and nitrile gloves everywhere. It feels a little dystopian. But that is exactly how it felt in September 2001.

“It’s a little slow,” said one Delta Air Lines (DAL) ticket agent in her understated Southern manner. I was asking about how traveler traffic looked compared with a normal Monday.

In a dramatic Sunday night announcement, the Federal Reserve cut interest rates to 0% (at the low end of its targeted range). It is another unprecedented move. The financial crisis also featured dramatic Sunday night happenings. Bear Stearns was bought for $2 a share by JPMorgan Chase after collapsing on a Sunday night. (The deal was later renegotiated higher to $10 a share.)

What’s different about the coronavirus outbreak is there is no financial crisis in 2020. Banks are more sound than they were in 2008 and frequently pass government-mandated stress tests. What’s more, they are ceasing buybacks to preserve cash. And the Fed is, relatively speaking, ahead of the curve providing credit support to the economy.

While the Fed’s move spooked markets, its heart was in the right place. Whether the ultimate stimulus package ends up being more monetary—with quantitative easing and low rates—or fiscal—with the federal government cutting taxes or mailing checks to all Americans—it looks as if the government is now erring on the side of caution.

What’s also different about Covid-19 is the business closing and financial moratoriums. The IRS, for instance, is pushing back the tax filing deadline to July. Children won’t be back in school for several more weeks—at the earliest. It took about nine weeks for China to start feeling normal again, based on air traffic and port activity.

U.S. investors don’t know how long the economic pause will be. Wuhan, China was quarantined in January, infections peaked two or three weeks later. That is not a prediction, just and observation.

All observations are valuable these days. Investors have to arm themselves with all the data points they can get to prevent them from making rash portfolio decisions.

The best news of all for investors, of course, is that markets are still substantially higher than in 2001 or 2009s.

Staff writer Al Root was previously a manager at London-based Altima Partners, among other hedge funds.

Write to Al Root at

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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