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Black Monday: A year after historic market rout, Wall Street reflects on what it got right — and wrong

On March 16, 2020, the U.S. economy was at a standstill. Since then, it has been a year of record-setting ups and downs.
Image: Specialist James Denaro works at his post on the trading floor on the trading floor of the New York Stock Exchange
Specialist James Denaro works at his post on the trading floor of the New York Stock Exchange on Oct. 28, 2020.Courtney Crow / New York Stock Exchange via AP

A year after the stock market seemed on the verge of a meltdown, economic experts look back with a new perspective on “Black Monday,” and the last 12 months of record-setting ups and downs.

On March 16, 2020, the U.S. economy was at a standstill — and for many, it seemed, at an inflection point: It had essentially been put into a medically induced coma in an attempt to stem the spread of Covid-19 across the country. Businesses, government offices and educational institutions shut down; outbreaks in major coastal cities stretched the capacity of hospital systems, and supply chain bottlenecks triggered shortages of everything from masks to milk.

On Friday the 13th, the market made a mockery of superstition with all three major indices jumping by more than 9 percent each, but those gains came during a week of eye-watering volatility that presaged the turmoil to come.

Twice that week, on March 9 and again on March 12, trading had been halted for 15 minutes after the S&P 500 plunged 7 percent — tripping circuit breakers implemented after stocks plunged by more than 22 percent on the original “Black Monday” of 1987 that would halt trading if a crash seemed imminent.

It all seemed a long way from Feb. 12, when the Dow Jones Industrial Average closed at a record high of 29,551.

“Especially in our line of work, it was a weekend defined by incredible anxiety,” said David Bahnsen, chief investment officer at The Bahnsen Group.

That Sunday evening, the Federal Reserve issued a rare, unscheduled statement, announcing that the central bank would lower its benchmark interest rate to between 0 and 0.25 percent and keep it there on an open-ended basis. Such a sudden break from the norm — coming from an entity that doesn’t change so much as a single word in its public announcements without careful deliberation — set off alarm bells for market experts.

“They don't do that unless parts of the financial markets are shutting down."

“I didn't quite comprehend what was going on until that second,” said Mark Zandi, chief economist at Moody’s Analytics. “They don't do that unless parts of the financial markets are shutting down,” he said. Behind the scenes, the central bank was scrambling to hold together overnight and short-term lending markets that were in danger of flatlining.

Zandi likened it to a military assault. “I was on Defcon Two and when I heard that I said, 'Okay, we need to be on Defcon One.’ This was obviously worse than I thought,” he said. “At that point, it was obvious that the pandemic was going to do tremendous damage to the global economy.”

Investing pros said they were flying blind. No comparison — not 2008, not 1987 — could capture the magnitude of what was unfolding in real time. “It felt reminiscent of 2008… but there was a life-or-death health component to it,” said Keith Buchanan, senior portfolio manager at Globalt Investments. “The world was shutting down. There was no playbook.”

By the time markets opened on March 16, there were just over 3,600 cases of Covid-19 reported in the U.S., and 66 deaths. When trading kicked off, the circuit breaker halted trading within moments. Over the course of the day, the Dow plunged nearly 3,000 points, a drop of nearly 13 percent and the index’s largest single-day point loss in history.

“It had all the makings of a total capitulation,” Bahnsen said. “[Assets] were not making any sense in the way they were trading,” he said, noting that stock and bonds — which usually move inversely — had both been in free fall during the previous week. “That only means one thing — a bunch of people need cash, and they’re selling whatever they can sell.”

Two days later, on March 18, rapidly accelerating losses prompted another halt in trading. The bottom would come a week later on March 23, when the Dow closed a fraction below 18,592 and the S&P closed just above 2237. Four days later, President Donald Trump signed the $2.2 trillion CARES Act, a sweeping, bipartisan financial life preserver that bulked up unemployment benefits, suspended obligations like student loan and rent payments, and included $1,200 direct payments to more than 128 million American families.

“Those direct checks were taboo — it was not thought of as possible here,” Buchanan said. “From a political standpoint, what made that possible was just how dramatically the U.S. market cratered.”

Trump was known as a stock market obsessive throughout his term, but even if the commander-in-chief hadn’t pegged his success to the performance of equities, Wall Street’s distress signal had become too loud to ignore.

“They didn't send out checks because there were a couple thousand people sick. They sent out checks because the market was telling them, ‘We’ve got a big problem,’” Buchanan said.

Wall Street pros say they got two other things wrong about the past year: How soon the pandemic would recede, and how fast the market would rebound. In a March 16 press briefing, Trump suggested that Covid-19 could be in the rear-view mirror by July or August — a prediction that turned out to be wildly optimistic.

“At the time, it wasn’t out of line with what other people were thinking. There was a belief at the time that warmer weather would be a big tailwind,” said Crit Thomas, global market strategist at Touchstone Investments. “Now you look back and it's like, oh geez, of course that was wrong,” he said.

“In the moment, nobody expected the stock market to have a banner year,” said Mitchell Goldberg, president of ClientFirst Strategy. “What I did not expect is that the pandemic would go on for an entire year.”

Nobody could ever claim they saw the recovery going this well this quickly. It’s pretty surreal to think how far we’ve come in just a year.

But while the virus lingered, the market malaise did not. “To think the market would only be down for a month is pretty surprising, and we were into new highs within a few months,” Thomas said. “A lot of that is a reflection of the dramatic monetary and fiscal stimulus” introduced by the Fed and Congress, he said. “It was not anything anyone anticipated or thought the Fed was even capable of doing."

Along with aggressive policy intervention, technology was the grease that kept the economy’s gears in motion. “It was the first time that our society has gone through such a crisis while having high-speed internet access,” Goldberg said. This not only helped facilitate the continued operation of consumer spending and business activity, but it proved to be a boon for Wall Street itself, he said. “I think people in financial services are very fortunate. We benefited from a rising market, we benefited from the ability to work from home. The stock market kept going. The stock market didn't close, it wasn’t like a restaurant.”

That contrast can be read as a microcosm for the nation’s economic fortunes over the past year.

“New York’s restaurants still aren't open. In a lot of ways, this story is a present tense story. But as a stock market story, the brutal moments of March last year are past tense,” Bahnsen said.

“There are a million people who claim to have predicted the financial crisis. But there will be nobody that could ever claim they saw the recovery going this well this quickly. It’s pretty surreal to think how far we’ve come in just a year.”