The Dow's History Lesson?

Today’s rally marked the highest close on each of the Dow, S&P 500 and Nasdaq in just over three weeks. Volume was up, which, in general, is a good sign when the markets are rallying. The main reason for this small bit of optimism is the decrease in the rates of death and COVID-19 cases in both Italy and Spain. These developments give many hope there is a light at the end of the tunnel. Moreover, there is some potential historical precedent to buttress this optimism.

The stock market today is looking a lot like it did a century ago. Great Hill Capital’s Thomas Hayes compared charts of the Dow Jones Industrial Averages from 1917-1918 and 2019-2020. If an interpretation of the trendlines is relatively accurate, the bottom could either be approaching or already have occured.

In 1917 the Spanish Flu was just starting to bubble up with the deadliest month of the whole pandemic not hitting until October 1918 — by then, as you can see from this chart, the Dow Jones Industrial Average had already begun to heal.

Hayes then compared the following chart of the modern-day market plunge, noting that the 32-34% drawdowns amid the early stages of both pandemics were virtually the same.

Then, the worst of the Spanish Flu was ahead for the public when the market cratered over 33% in 1917. Today, we have yet to see the peak of the COVID-19 outbreak, but the markets may have already seen the worst of this pandemic. Unlike today, the entire world economy in 1917 did not vitually come to a complete standstill. Today, however, we have better medicine, a healthier population and social distancing in place. Perhaps we’ll get a quicker recovery. One can hope. Until we’re sure the markets have put the COVID-19 crisis behind it, take gains quickly, cut losses quicker and stay vigilant.