Investing | 1987 vs 2020 (PART I)
Ludovic Siouffi - Mar 18, 2020
First and foremost I hope you and your families are safe and practicing social distancing protocols.
I wanted to take this opportunity to give you my insights into what we’re seeing within the financial markets, and how this compares to previous market meltdowns – specifically to the crash of 1987.
There are two certainties during these times;
1) panic spreads faster than the virus itself, and
2) no one knows how long this will last, and what the economic impact it will have on the global economy. With that in mind, I don’t think the world is coming to an end, and maintain the view of most, that this too shall pass.
“Unfortunately, corrections only feel natural, normal, and healthy until they actually happen.” - Canaccord Genuity Chief Market Strategist, Tony Dwyer.
To your benefit, this isn’t the first time we have experienced a market correction. Looking at history to help guide us ahead, we can uncover many similarities between previous market corrections and this year’s pullback.
The best comparable would be that of the Black Monday crash, back in 1987. The S&P fell 20% in a single day, rose 15% the next 2 days, then returned to the low the following week. In 1987, the S&P fell more than 30% over 10 days into the first low, as depicted below.
The highlighted box in the chart above showcases the 1987 crash and the sharp volatility that followed. We are seeing a very similar pattern unveil itself today.
Another similarity between 1987 and 2020 - the length and rise from previous lows – almost identical.
Following the 1987 market crash, the S&P was up approx. 25% a year later and back at prior highs approx. 2 years later.
I fully understand that the economics behind the crash of 1987 and that of today are very different. With that said, there are some striking similarities between both events from both a technical and fundamental standpoint. Here is an interesting overlay of today’s market to that of 1987, and how they compare.
Moving forward, our research points to weeks of volatility as we globally try to get a sense as to the impact of this virus, followed by a retest of this weeks lows. One short-term catalyst for this retest could be Q1 earnings expected to be released in the coming weeks, which for obvious reasons aren’t expected to be positive. Therefore, if you have the luxury of time (meaning that you are able to buy and will not need the funds in the short-term), then in my opinion the opportunity of a decade is about to present itself to buy into this market.
Trying to time the bottom is impossible. For most investors sitting on cash, with a long-term time horizon to invest, I am recommending a slow and steady approach of buying at different intervals.
As usual, I look forward to your questions and comments. Feel free to also drop me an email.
Ludovic Siouffi, MBA, CIM, RIAC
Canaccord Genuity Corp.
The comments and opinions expressed in this newsletter are solely the work of Ludovic Siouffi, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Ludovic Siouffi does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.