A year ago, stocks fell 12% in a single day. What investors have learned since then

Traders work on the floor of the New York Stock Exchange (NYSE) on March 16, 2020 in New York City.

Spencer Platt | Getty Images

March 16, 2020 was the day Covid got very real for market investors. It was the week when everyone realized we were facing a lengthy shutdown.

When the S&P 500 fell 7% shortly after the Open, the breakers turned on and stopped trading for 15 minutes. It was the third breaker stop in a week after similar interruptions on March 9th and 12th.

Dow industrials fell 12.9%, the second largest percentage loss since World War II (after falling 22.6% in 1987).

The S&P 500 fell 12%, the third largest percentage loss.

The Nasdaq fell 12.3%, its largest percentage loss ever.

The S&P 500 would not bottom until March 23, a week later. From February 19, 2020, high to March 23, the S&P would decline 34%.

Then, almost as quickly, the market reversed. In August the S&P was back to its old highs.

How the Fed changed the world

The world is a very different place now.

What has changed?

For Jim Paulsen von Leuthold it was easy: The Fed and the government went big. Very large.

“Investors are selling ‘fast and big’ and politicians are ‘fast and big’ to save the world,” said Paulsen. This week the Fed launched a massive monetary stimulus package that cut rates to near zero and revealed plans for massive asset purchases.

A new era in hyperkinetic trading

Many other things about investing have changed over the past year. I asked a group of stock traders what has changed the most.

For Jim Besaw, GenTrust’s chief investment officer, it was the realization that the market had entered some sort of hyperdrive: “Everything that we previously thought would take months would now happen in a matter of days / hours. “

Others found that investor behavior had become almost hyperactive. Many cited dramatic moves in thematic technology investments (cybersecurity, social media, clean energy), special-purpose acquisition companies, bitcoin and microcap stocks.

While wealth is made and lost in the blink of an eye, it is problematic for many old-school traders.

“There is so much money out there now that it will have its own impact,” said Will McGough of Stadium Money Management. “You could argue that crypto and SPACs are just a means of raising all that new money.”

Jones Trading’s Mike O’Rourke agreed, “An exceptionally accommodative policy during the pandemic forced the FOMC to respond with record asset purchases to provide liquidity during the crisis. The Fed provided so much liquidity that it created several has simultaneous asset bubbles. “

The Fed is now the major concern for the markets

In fact, the Bank of America / Merrill Lynch survey of global fund managers on Tuesday found an astonishing turnaround: a majority of traders now believe that inflation and a Fed reversal of low interest rates are the greatest risk to the stock market, and that Previous concerns about Covid have been displacing risk number 1 since February 2020.

Miller Tabak’s Matt Maley warned that what the Fed can give can last: “We should have learned that the Fed tends to be a lot more accommodative when the market is down (and cheap) … and up moving to less accommodative position when the market is on the up (and expensive). “

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