It's hard to imagine right now, at this very moment, the terror we felt this week last year. But I think it's important that we do exactly that because we are way too quick to call the end of the world in this business and almost invariably fail to acknowledge the resilience of this amazing market.
Last year this week, we were gripped by a combination of fears that produced an almost 2,000-point decline in the Dow over five straight days. The swoon took us from Dow 18,567 to Dow 15,666, including one day where we shed 1,000 points before an afternoon rally trimmed the decline to 588 points.
The whole affair was record-breaking. You had to go back to 2008 to find a worse stretch and those were the darkest days of the Great Recession.
There was so much going wrong all at once, it was hard to comprehend. First, the Chinese market was just plain collapsing, rolling over in a way that had us all totally freaked out. The government had lost control of stocks after a frenzied period of speculation. We watched in horror as the Shanghai Composite fell from 3993 to 2964 after its already hideous fall from 5179 earlier that spring.
We feared that China was experiencing the great denouement, a slowdown from 7% to 6%.
At the same time, we were starting to fathom the enormity of lower oil prices. In fact, oil took out $40, causing investors to tremble over the $300 billion in oil debt on the books and starting the guessing game of which major oil companies would slash their dividend on the way to defaulting on all their debts.
In the midst of all this, on the Friday before the 1,000-point decline, an important Federal Reserve official, James Bullard, gave an interview on satellite radio where he seemed to be making the case for a September rate hike. His comments were widely viewed as out of touch and way too sanguine about the world's economic fragility. He seemed to be making a brief for raising rates right into a Chinese-led crash of epic proportions, verified by the plummeting price of crude.
I remember being on the floor of the exchange that day and seeing stocks opening down 10, 15, 20 points. I had tried to calm people down by saying it's not the end of the world, but I was drowned out by the far more vociferous world-enders who always seem to surface right on cue when the market's plummeting, I even made the case to do some buying but was quickly dismissed as just a ridiculous bull in the face of the inevitable collapse that we've all been waiting for.
Now take a look at what has happened since then. First, China never really went any lower than it did during that skein. Sure, the government pretty much mandated that prices not decline anymore. They were talking about investigating sellers and arresting those who would short stocks. Of course, we heard that couldn't last. No government's bigger than the markets, right?
But how about totalitarian communists who control every aspect, every part of the apparatus, from the courts to the prosecution to the jails to the executions handed out to white-collar criminals? A stock market had finally met its match. Oh, and the slowdown? Turns out that 6% is a heck of a lot better than nothing, which is pretty much what almost every other economy worldwide was giving you. The great Chinese stock market crash was over just when we thought it was beginning.
How about oil? Turns out that not only was $40 not catastrophic, neither was $30. Cash-strapped oil companies were able to use the stock market to raise money to pay the bills while they worked to lower their break-evens. A year later and plenty of oil companies in this country are making decent money at prices only a few dollars higher than they were back then. No major oil company went broke. In fact, as the decline continued, opportunistic investors who jumped in to buy the oil stock offerings made out like bandits. Communism saved the Chinese stock market, capitalism saved the oil companies.
And the Fed? It did nothing. When Janet Yellen got together with the rest of her tribe, she cautioned that perhaps the markets were too fragile to handle a hike and they stayed on hold. Subsequently, of course, they did act and the stock market took another hiccup, but let's save that for another date.
The fact is the worst day of the stretch did indeed mark the bottom, and all that Sturm und Drang truly was for naught.
I mention all that now because no matter what seems to happen, no matter what data we get, or what successes the economy has had, or individual companies produce, we still act as if the world is about to end.
Consider today. We just got the strongest new-home sales since 2007, at last going back to levels we haven't seen since the Great Recession. We have just come through a remarkably good earnings season where we saw some actual revenue growth, particularly from international companies, some of which are seeing their best numbers coming from Europe. Last year, we had a couple of generals that went by the acronym FANG: Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) and Google (GOOGL) . The problem with the generals? Nobody was following them. Now we have hit all-time highs in the Nasdaq Composite and the breadth of the companies leading the charge is staggering: semiconductors, softwares, health care, retailers. You name it. (Facebook and Google are part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
All we heard about last year was the narrowness of the Nasdaq rally. But how many times do you hear about the broad nature of this one? Do you hear anyone cheering? Do you see anyone clapping? Yet the methodical, resilient way this market has advanced is textbook bullish. I offer no apologies about that judgment. In fact, I feel as if I don't point it out, no one will. In a world of YouTube clips and instant dopes, it's just too dicey to mention how good a particular market is lest you get a large point decline the next day. Who wants to be caught saying we have a terrific market when that clip will be played in social media from here to eternity to note what a fool you were?
Now, once again, we are faced with an Apocalypse Now situation, with Janet Yellen speaking Friday at Jackson Hole. We know there are plenty of bears just waiting to wave "the end of the world" flag the moment she says anything hawkish. If she even mentions putting a rate hike on the table in September, it's entirely possible we will be talking about how ugly Monday will be, not unlike the down-1,000-point Monday a year ago.
But here's what I promise you if that occurs. I am going to take out the chart of what happened last year at this time, the breakdown of the crash of 2015, and remind you that three months later we were pretty much right back where we started. And while we did revisit the ugly levels of last August again in February, it was, alas, just another fabulous buying opportunity.