We call it a crescendo. That's when all the selling comes to a head, just like a symphony, and the instruments crash to a beautiful conclusion.
That's what happen one year ago today: we got the crescendo many of us were waiting for, the one that brings to a conclusion all the pain and amounts to a bottom, except unlike in a symphony you may not know it's happening.
We are so far away from that, so far up in terms of appreciation, that I think it's worth examining how we can spot a bottom the next time after the inevitable selloff.
First, I have to give a nod to the late Mark Haines, the man who ruled Squawk Box and Squawk on the Street for so many years and was always trying to divine a bottom and did it better than anyone. The fabled Haines bottom, also in March but this one of the 2009 vintage was a classic Haines call. He loved ratios as ways to spot the crescendo and he nailed that one when sellers overwhelmed buyers on a nine to one ratio. That kind of exaggerated selling to him meant that everyone was giving up at once and that couldn't possibly be the right thing to do.
Me? I like to see how many companies have become accidentally high yielders, meaning that their dividends, usually producing a meager yield, suddenly gave you a large one.
I wish I could say our indicators worked. This bottom, however was sneaky. Sure the averages hit their lows a year ago, but the crescendo I looked for occurred a few days earlier, on the 19th - remember it was the 23rd that we saw a bottom - when there were 79 S&P companies that had declined 50% with 5% yields. One hundred and nineteen stocks had withered 40% off, with a 4% yield. But the worst was yet to come.
The real bottom, the 18,213 Dow bottom, down 10,000 points from the high not that long ago, looked very different. It happened fast. It was hideous as usual, still though, it was a ball of confusion because already many stocks had started to climb higher, they just weren't important enough in the indices to see. Oh sure that day Apple (AAPL) closed below the one trillion mark - it's now at $2 trillion - and Microsoft (MSFT) was the only company selling north of one trillion but Apple would have thrown you off the scent.
You know what caused the confusion though? There were many stocks that had already bottomed ahead of time. These were to become the leaders, the stocks, of companies that were part of what many were calling the Great Reshuffling, a term I first heard on a Zillow (Z) conference call, where there was an urban exodus to homes in the suburbs and the country where work could be done remotely. These stocks were well on their way toward exalted status. They had to be bought earlier to get a real bargain.
Now the market had been falling for a full month before March 23rd. The Dow's didn't hit terra firma until it had given up 10,000 points from its February high, and while Wall Street was complicit that day with a host of downgrades and give-ups, it wasn't responsible for that actual day's decline. Sure there were some noteworthy downgrades. Wells Fargo took Carnival (CCL) , the epicenter of what was a public health crisis, not a financial one, from hold to sell cutting its price target from $53 to $6 as the company was desperate for liquidity. There were downgrades everywhere in travel and leisure. Big caps took it on the chin, mostly because top down strategists cut overall numbers and tech's such a large part of the market. That's when Apple dropped below $1 trillion in market cap, it's now $2 trillion, and only Microsoft stayed above that august level.
Nevertheless, if you wanted to point the finger, look no further than a leaderless Washington, which was more responsible for the crescendo than anything that Wall Street could throw at you. That's because Washington had promised relief in the form of a gigantic package meant to tide us over until we found a cure for Covid-19 and they just couldn't reach a deal despite the chaos all around them. Just like the catatonic days of 2008, Washington seemed incapable of realizing its own impact on the economy or stock prices and the attendant fear that they can cause for anyone who needed credit.
You see that day, that day when we got the crescendo came when the Senate surprised Wall Street when it failed to agree to the relief plan. Even though it seemed like theatre, the same kind of theatre we saw in 2008 when TARP failed to pass the first time, investors were faked out and the Dow fell 800 points from the day before. Treasury Secretary Mnuchin tried to calm the markets saying that Congress was "very close" to a deal but the markets were not appeased.
Ironically, Mnuchin was right. They were close. However, it took a horrendous weekly unemployment number announced three days later, the worst on record, 3.28 million, to get the Senate to agree to the $2 trillion package and the averages started their long climb from the abyss. Yes, just like in 2008, it was the Kabuki dance of Washington that fooled Wall Street. If you wanted to own the classic industrials you had to buy when they failed to reach a resolution because Washington only comes together when Main Street, not Wall Street, sees the damage and that unemployment number tipped the balance in the Senate and started the process of sending stimulus checks to the people.
Now let's go back to why it was so much harder to spot this bottom than the Haines bottom of March of 2009, which could be seen through a prism of up and down ratios. The tricky nature of this collapse had to do with a group of stocks that not only had bottomed a few weeks before the actual index landed, but had been going up for weeks: the work at home play at home stocks like Zoom (ZM) and DocuSign (DOCU) or Etsy (ETSY) and Shopify (SHOP) . Or PayPal (PYPL) and Square (SQ) . They based already and were gaining adherents even as the companies that needed people to go to the office or to travel or to shop. These were the key components of what I called the Cramer Covid Index because they were actually doing well before March 23rd and they threw you off because there was no uniformity to the selloff. It was more a changing of the guard and you had to be nimble enough to realize that the money was going out of the losers into the new winners even as it looked from the averages as if everything was going down.
That's because it turned out that unlike other downturns, the U.S. economy produced a ton of winners during Covid as Americans adjusted en masse to working at home. The central office primacy ended and the Zoom ecosystem had begun to take hold, something that's still with us even as we are getting vaccinated at record levels.
To me there's a simple moral here. You got a bottom when hopes that Washington would come to the rescue failed to be realized. If you panicked that day you blew it because it should have been obvious that there was no choice ultimately but to pass the rescue package because unemployment had reached a level where the two sides had to come together and did so three days later. The darkest really was right before the dawn. You just had to anticipate that, like 2009, they'd screw it up once, causing the panic that reverberated to Wall Street, before getting it right just a few days later after the bottom had been put in.