What Happens to Stocks When Disaster Strikes?

This week marks the 50th anniversary of the tragic assassination of President John Fitzgerald Kennedy, followed by the shooting of his accused assassin Lee Harvey Oswald on national TV. The stock market was closed shortly after the President’s death, and it remained shuttered during his funeral on Monday.

What happened next? The market went into a “free fall,” right? Nope. On Tuesday, November 26, 1963, the Dow gained 32 points (+4.5%). Then came Thanksgiving Day, after which the market rose further on Friday, gaining an impressive 5.5% in the week after the shooting of a popular President.The Dow continued to rise in December (+1.75%), closing 1963 up 17%. These double-digit gains continued for the next two years, as the Dow rose 14.6% in 1964 and 10.9% in 1965. As it turned out, the economic benefits of the Kennedy-Johnson tax cuts in 1963-64 overrode the tragic events in Dallas.

The Market’s Main Concern on Friday, November 22, 1963

If you look at the financial press on the day the President was shot, the biggest concern on Wall Street was a Ponzi scheme in the vegetable oil market. Fifty years ago, on Tuesday, November 19, 1963, Anthony “Tino” DeAngelis’ and his Crude Vegetable Oil Refining  filed for bankruptcy.That may sound innocent enough, but CVORC turned out to be a shell corporation for speculation in vegetable oil futures.

As of November 19, 1963, “Tino” owed two major brokerage firms (Williston & Beane and Ira Haupt & Co.) so much margin money that it endangered the existence of both brokerage firms. On Wednesday, November 20, the New York Stock Exchange suspended both firms from trading, which put their other 9,000 speculative trading customers at risk.

Even American Express (AXP) was at risk for guaranteeing the warehouse receipts for all these trades. Young investor Warren Buffett used the steep plunge in American Express stock to buy 5% of the company for just $20 million. On Friday morning, November 22, Merrill Lynch and others stepped up to rescue their broker brethren. Hours before the Dallas shooting, NYSE president G. Keith Funston was trying to avoid a crash caused by liquidation of the 20,700 customer accounts at Ira Haupt. Friday’s 24-point Dow decline was partly due to the vegetable oil crisis, exacerbated by the news from Dallas, which caused the market to close.

This goes to show that the worst news of the day tends to make us forget what seemed important the day before. How many people know that two famous British authors – C.S. Lewis and Aldous Huxley – also died on November 22, 1963? Their obituaries were buried in the press coverage of JFK’s death. The Market Rose after Most Major Historical Tragedies. Think back to some of the major political or personal tragedies of the last 75 years. In most cases, the market rose for several days after the unexpected, tragic event.

Here is a list of our darkest days:

1939: Hitler invaded Poland on September 1, 1939, launching World War II with shocking speed, reaching Warsaw within a week. September 1 was the Friday before Labor Day weekend, so how did the market fare when it re-opened? On Tuesday, September 5, 1939, the Dow rose 12.87 points (a massive +9.5% daily rise). In the first half of September 1939, the Dow rose a near-euphoric 14.6%

1941: After a surprise attack on Pearl Harbor, the initial market reaction was surprisingly mild. After the Sunday morning attack of December 7, 1941, the Dow declined less than 3% on Monday, December 8 (falling from Dow 115 to 112), but then the market stayed remarkably level over the next two months, dipping briefly below 100 in April, then resuming its inexorable rise for the rest of World War II.

1962: In the week of October 22-26, 1962, the Cuban Missile Crisis brought the world to the brink of annihilation, but the stock market stayed surprisingly calm, falling less than 1% for the week, then rising strongly (+3.5%) in the two days after the threat faded. The much bigger collapse in 1962 came in the spring, when the market fell 28% after President Kennedy launched a verbal war with U.S. Steel.

1968 brought two more tragic assassinations, on April 4 (Martin Luther King, Jr.) and June 5 (Robert F. Kennedy). King was shot on a Thursday evening, spawning riots in dozens of cities. The Dow fell less than 1% the next day. The Dow rose 2.15% on the following Monday and 4.6% for week after King’s death. After RFK’s death, the market fell just 1%, but then erased that loss in the next few trading days

1986: On January 28, the explosion of the space-shuttle Challenger on a sunny Tuesday morning had no impact on Wall Street. The market gained 1.2% that day, and kept rising the next day, week, and month

2001: The attack on America on September 11 was targeted at our financial heart, so the market fell sharply when it re-opened the following week, but it’s important to remember that America was already in the midst of a recession and a bear market when the attack happened. Still, the market reached its September 10th levels within two months, on November 9, 2001, and kept rising into the Spring of 2002.

The lesson here is that the stock market will probably leave you plenty of room to make an orderly exit during the worst of times, but the greater investment risk you face in such traumatic times would be to sell stocks in a panic, followed by a failure to re-enter the market in time. If you assume the worst and sell all stocks after a crisis, you could miss the quick recovery, as America finds strength in adversity.

Bringing this lesson home, our Navellier portfolios continue to actively participate in this bull market, while structuring some of our portfolios with defensive measures to soften the inevitable market shocks. We believe our portfolios will outpace the market in the weeks and months ahead based on positive fundamentals and the mid-term election-year cycle. But even if the “worst” comes to pass, we also have confidence the market will recover from any currently-known threats, as well as any sudden shocks.

Written by Gary Alexander

Article printed from InvestorPlace Media, https://investorplace.com/2013/11/stocks-warren-buffett-jfk-assasination-axp/.

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