On Friday, February 2, 2018, I was staying in a hotel out of town watching CNBC as the stock market sold off in a big way. During January 2018, prior to that Friday, the stock market had “melted up”, closing higher each day with little volatility. However, on 2/2/18, the S&P 500 index closed down 60 points, which was over 2% in that one day. After the weekend, which was Super Bowl weekend (the Eagles beat the Patriots, remember?), the market selloff continued and accelerated. On Monday, 2/5/18, the S&P 500 was down another 4%. A major correction, caused by a fear of rising interest rates, was on. Though markets stabilized later that week, higher volatility became the new normal and 2018 turned out to be a tough year for the stock market.
On Friday, January 31, 2020, which was last Friday, I was once again staying in a hotel out of town watching CNBC as the stock market once again sold off in a big way. Once again, it was the Friday before the Super Bowl. Once again, the stock market seemed to have “melted up” with minimal volatility during January 2020. However, on 1/31/20, the S&P 500 was down by about 1.8%. The concern this time was not interest rates but Coronavirus in China. For me, the situation and the timing were uncannily similar to what had happened exactly two years prior on the same trading day.
Well, so far this week, the Friday sell-off has not portended to continued selling the following week. On the contrary, the Friday sell-off seems to have presented a buying opportunity, as stocks have erased the 1.8% Friday loss and then some. News regarding the Coronavirus has not looked so bleak, and with interest rates remaining low and falling lower last week, stock investors are buying. One could argue with their reasoning but February 2020 does not seem to be a repeat of February 2018, at least so far.
What to make of this? Just because something happened once before doesn’t mean it is going to happen again. Every stock market situation has a unique set of circumstances. Be very careful before you extrapolate one set and make financial decisions just because you think there might be a repeat performance. Instead, take a step back and review the entirety of the market and your own situation. Your decision might have a better chance of being correct.