Bellevue Perspectives

History Lessons


March 9th was the 11th the anniversary of the Global Financial Crisis ending (2008-2009 bear market ended on 3/9/2009) but the last two weeks have provided a reminder of the volatility and turmoil investors observed in 2008/2009. Yesterday’s decline of -7.6% was the largest single day decline since the Global Financial Crisis and when looking back further, it was the 19th worst single day loss in the S&P 500, dating back to January of 1928.

Yesterday’s decline was driven by the accelerated spread of COVID-19 (coronavirus) throughout Europe and the United States, as well as escalation in oil negotiations (or lack thereof) between Russia and Saudi Arabia. The decline was primarily based on increased fears of COVID-19 and resulting economic impact, and price compression within the energy sector. The current supply/demand dynamic in the oil market is like nothing we’ve seen in a long time. The lack of demand driven by COVID-19 combined with the supply glut caused by the price war can have a real impact on US credit, the US shale industry, inflation expectations, and equity markets. In fact, overnight and then shortly after the market open, stock exchange “circuit breakers” were enacted for the first time since 1997,temporarily halting trading (and therefore the declines). The last two weeks have been extremely volatile and while the decline was aggressive, market structure remained intact. Yesterday was a “different animal” – investor’s emotions took control and indiscriminate selling occurred.

These emotional periods are where investors must remain process-oriented and data-driven. With that in mind, two data sets stood out to us after yesterday’s close. First, the obvious data point: a decline of -7.60%. Second, 99% of companies in the S&P 500 declined yesterday. With these data sets in mind, we performed historical analysis to compare yesterday to past occurrences.

Historical Analysis

A single-day decline of -7.60% is very rare, only occurring nineteen times from 1/1/1928 to 3/9/2020. When this magnitude of a decline has occurred, returns going forward tend to be better than average in the short-term (5 days to 1 month) and over the long term (12 months). The probability of positive results in the short term are also higher. The probability of positive results over the long term (6-12 months) are less likely after a decline of -7.60% or more; this is largely due to a cluster of such declines during the Great Depression.


When evaluating the breadth of the decline, measured by the percentage of companies in the S&P 500 that declined yesterday, we see even more attractive results. In fact, across all time horizons, after a day where 99% of the S&P 500 declined, average returns are significantly higher (2.2% vs. 0.2%). Additionally, the likelihood of positive results over those time horizons were all higher.


What We’re Watching:

We continue to monitor the spread of COVID-19 and the impact of increased transmission of the virus around the world and in the United States. The potential for further economic impact will rise upon increased fear, resulting in a large amount of the workforce working from home, school closures and suspension of business travel, etc. While anecdotal in nature, and difficult to measure/track, these are important in accurate evaluation of the economic impact.

From a capital market perspective, we believe that US Treasury yields are a critical factor in the stabilization of risk assets. Essentially, until we see a stabilization in US Treasury yields, we do not believe equities can sustainably move higher. Yesterday may have been the starting point of stabilization – while yields “gapped down” (i.e. opened much lower than the prior day), the yield on the US 10 Year Note ended the day higher than it opened. If we use the safety of government bonds as a proxy for safety and/or fear, this indicates investor became LESS fearful during the trading day, despite equities closing near the lows of the day. We are also closely monitoring the above breadth data to understand how markets are behaving “underneath the surface” and if there is a “buying frenzy” in the coming weeks, indicative bulls have taken control from bears.

What to Do Now?

Let us be clear: we do not disagree that the environment has become more challenging – we do expect the news cycle to get worse before it gets better, economic data is likely to weaken in short term due to COVID-19 and earnings revisions are likely to occur in the coming quarter. As long-term investors, we must be steadfast in our approach, rely on our process and remain a long-term investor. With that said, we recommend you also stay focused on your long-term financial plan, investment policy statement / strategic asset allocation.

  •  Take advantage of the volatility and where appropriate, tax harvest losses to increase tax-efficiency (but be careful to not give up too much beta and/or purchase securities that are not appropriately correlated as replacement securities).
  • Look to add exposure in high-quality, long-term investments. Regardless of the market environment over the short-term, we know that over the long term, investors will benefit from buying quality companies 20% below their February 2020 highs.
  • Rebalance portfolios – after a long bull market, particularly one that has seen strong outperformance of US equities and extremely strong fixed income results, rebalance from what has worked to what has not. Please reach out with any concerns or questions.

We thank you for your continued trust.

HighTower Bellevue is registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and Hightower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of Hightower Advisors, LLC, or any of its affiliates.