Black Monday 2020: the Stock Market Backtracks to 2017

Well, that happened, and by that I mean a black swan sort of a day, a day living in the same general neighborhood as September the 15th, 2008 (the worst day of the worst financial crisis since the Great Depression) and September the 17th, 2001 (the day the stock market first opened for trading following 9/11). And let’s not pooh-pooh the 22.6% single-day swan-dive-into-a-belly-flop the Dow 30 did on Black Monday — that would be the 1987 Black Monday, not the one we just experienced, which we’ll probably end up calling the 2020 Black Monday — which makes today’s sub-8% drop look like a wee piker. I remember it well . . .

Today was a day in which, among other things, the Russians and the Saudis decided to really screw with each other over the price of oil (the good news: getting those two to kiss and make up and just all get along is something the current administration should be not-terrible at). It was also a day when people living in a portion of Northern Italy representing one quarter of Italy’s landmass — which is a lot, but it’s even more when you consider that the people living in those areas generate two-thirds of Italy’s economic output — was in quarantine. And making it all so very, very much worse, it was also a day when the worst president of all time continued to make light of the unfolding epidemic and continued to let us know, in so, so many words and actions, that he really doesn’t want to test people for the virus because that would make him look bad.

But I digress. I’m here to talk stocks ‘n bonds and such and, more specifically, Friedman’s Law of the Backtrack.

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One of the very best ways to judge the severity of a stock market downdraft following a generally up-trending market is to figure out the “backtrack” — that is, how long ago was the earliest point in time that the stock market first reached the levels the downdraft is reprising?

The answer to that question today is December of 2017. That’s the first time you could have bought into (or sold out of) the American stock market at a pricing level similar to today. So, if you ignore dividends (the cashflow that a stock portfolio generates) and look only at prices of stocks themselves, everything that happened in the stock market from 12/2017 until 3/9/2020 has pretty much amounted to a hill of beans . . . flattened by an ocean liner anchored off the coast of the Bay Area, full of people whiling away the hours while sitting in quarantine.

Picture it this way: if you had thought about buying into the market in December of 2017 but didn’t, and have regretted it ever since as you watched the market climb climb climb, regret no further because the market has retraced itself all the way back to that level and you can now do what you regretted not doing way back then.

To just go there, feast your eyes on this five-year chart of VTI, which is Vanguard’s Total Stock Market fund in its Exchange Traded Fund wrapper:

So you see those faint vertical gray shadings alternating with similar white shadings (or vice versa, depending on how you see things) (oo-wee-oo)? They represent six-month chunks of the calendar. And you see the blue squiggly line? That represents the closing daily prices of VTI shares for the past five years — from considerably less than $100 in early 2016 to more than $170 about three weeks ago.

I chose VTI here because it serves as the most fundamental of all building blocks for people investing in stocks in America because VTI, in a very sophisticated but outwardly quite simple way, represents the entire American stock, and it does so proportionally, so, if, e.g., the value of all shares of Apple stock equals 4% of the value of all publicly traded stocks in the American stock market, then 4% of the portfolio of VTI would be invested in AAPL shares, etc.

And you see that horizontal dotted line? I snapped that, chalk-line like, with my mouse, and did my utmost to make sure that the right-most part of the dotted line would intersect today’s price of VTI just a few minutes shy of the end of the day. As it happened, that line is at $139.78, and the last price for VTI today was $138.50, so the line is actually a bit higher than the price of VTI at the close of the market at 4pm Eastern/1pm Pacific (yup, it was so ugly a day in the markets that the last five minutes served to add insult to the already quite egregious injury).

And you see the leftmost point where that blue line and the horizontal dashed line touch? It looks like it’s right around 12/31/2017 or 1/2/2018. But I went ahead and looked up the intraday prices of VTI in late 2017 and it turns out VTI had an intraday high price (as opposed to the closing prices shown in the chart) on December 18, 2017 of $138.68 — a bit more than a bit higher than the close today.

And that’s the answer to the backtrack question: the American stock market has backtracked a few days less than two and a quarter years, and is (un) partying like it’s the Monday a week before Xmas during the 2017 holiday season. I remember it well . . .

Given that this is 2020, that kinda sounds something like three years. You know what else has been going on for something like three years?

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Two last things:

First, yes, I did expand two and a quarter years into three years and added in an implication about something that’s been going on for about three years and a couple of months (or a bit more than three years and four months, depending on how you count). Fluffing up numbers is appropriate given the aim of my fluffing, who, among other chiefly things, is the NDIC — the Numbers-Distorter-in-Chief.

Second, don’t @t me for using Yahoo Finance. In the early days of the Internet, when dinosaurs roamed the earth and the Internet was almost purely a force for good, Yahoo Finance was totally great for grabbing charts, so it’s where I built up my charting chops. Admittedly it hasn’t been great at that for years, but it still does a better job than other charting tools — for me anyway (and did I mention that This Old Dog is one of my favorite TV shows?).

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