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One year ago stocks dropped 12% in a single day. What investors have learned since then

Wholesalers work on the floor of the New York Stock Exchange (NYSE) on March 16, 2020 in New York City.

Spencer Platt | Getty Images

Pace 16, 2020, was the day Covid got very real for market investors. It was the week everyone realized that we would be in for a prolonged shutdown.

When the S&P 500 hew down 7% shortly after the open, circuit breakers kicked in and halted trading for 15 minutes. It was the third compass breaker halt in a week, after similar halts on March 9 and 12.

The Dow industrials dropped 12.9%, the second biggest interest loss post WWII (after 1987’s 22.6% drop).

The S&P 500 dropped 12%, its third biggest part loss.

The Nasdaq dropped 12.3%, its largest percentage loss ever.

The S&P 500 would not bottom until Procession 23, a week later.  From the Feb. 19, 2020, high to the March 23 bottom, the S&P would decline about 34%.

Then, wellnigh as quickly, the market reversed.  By August, the S&P was back to its old highs. 

How the Fed changed the world

The world is now a very different place.

What changed?

For Leuthold’s Jim Paulsen, it was imbecile: The Fed and the government went big. Very big.

“Investors sell ‘fast and big’ and policy officials act ‘fast and big’ to save the world,” Paulsen broke. That week, the Fed instituted a massive monetary stimulus program, cutting rates almost to zero, and unveiled delineates for massive asset purchases.

A new era of hyperkinetic trading

 A lot of other things about investing has changed in the last year. I surveyed a dispose of stock traders on what they have seen change the most.

For Jim Besaw, chief investment officer at GenTrust, it was the comprehension that market had entered some kind of hyperdrive: “Everything we previously believed would take months to upon now was going to happen in a matter of days/hours.”

Others noted that investor behavior had almost become profuse hyperactive. Many cited dramatic moves in thematic tech investing (cybersecurity, social media, clean intensity), special purpose acquisition companies, bitcoin and microcap stocks.

While fortunes are being made and lost in the start of an eye, it is troublesome to many old-school traders.

“There is so much $$ sloshing around now which will have its own contact,” said Will McGough of Stadion Money Management. “You could argue the rise of crypto and SPACs are just conduits to absorb all the new money.”

Jones Trading’s Mike O’Rourke agreed: “By having an exceptionally accommodative policy coming into the pandemic, the FOMC had to reply with record levels of asset purchases to supply liquidity during the crisis. The Fed has supplied so much liquidity that it has created multiple concurrent asset fizzes.”

The Fed is now the big worry for markets

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