Comparisons of 2020 to prior times in U.S. history are rightfully making the rounds. Market participants are always looking for analogs. Niall Ferguson’s piece today has an interesting compare to 1968 here. And today’s WSJ has a terrific piece on a compare to the Russian Revolution.

But since Peter mentioned the generational low in the Dow of 1942 here, we thought an expansion on that period is worthwhile.

Buying “when there’s blood in the streets” is so difficult, yet, in addition to “selling when others are greedy”, it’s what every contrarian seeks.

The first quarter of 1942 presented zero “good news” for bulls to latch onto, and yet the first month of the second quarter of 1942 (April 24 to be precise) marked a generational bottom in U.S. stocks.

Context below on one of the most challenging years in world history. Keep this list handy the next time Cassandra tells you “America will never recover from this”, “It’s never been this bad”, “We can’t make enough PPE or ventilators”, or “This time is different”.

The following events occurred during just the first four months of 1942


U.S. and Philippines armies defeated by Japan in the Battle of Bataan

Japan bombs Manila, Philippines

Japan declares war on the Netherlands

Japan captures Kuala Lumpur

“Second Happy Time”, the German submarine commanders’ name for Operation Paukenschlag (Operation Drumbeat). German submarines sink Allied shipping almost unfettered for a year along the east coast of the U.S. The inept American response includes converted yachts and wooden chase boats. German subs sink tankers within sight of Long Island, Sandy Hook, South Carolina, in the Caribbean and the Gulf of Mexico. In February, Germany introduce the Enigma machine for U-boat traffic, blinding the Allies to German radio signals for most of the year.

Japan invades Burma

Germany holds the Wannsee Conference in Berlin, decides that the “Final Solution to the Jewish problem” is extermination camps.

Germany launches offensive in Libya

Australia defeated by Japan in the Battle of Rabaul

Thailand declares war on the United States and United Kingdom


Singapore surrenders to Japan. Japanese Army begins the systematic extermination of Chinese Singaporeans.

Japan bombs Darwin, Australia

Japanese submarine fires on an oil refinery near Santa Barbara, CA

MV Struma, carrying Jewish refugees from Romania to Palestine, is torpedoed and sunk by a Soviet submarine, killing 791 men, women and children. One survivor.

Dutch Navy is defeated by Japanese in the Java Sea; 2.300 sailors die.

MARCH 1942

Germany executes 1,900 central European Jews north east of Riga. Two weeks hence, 1,840 more are killed

New Zealand and Australia declare war on Thailand.

Germany opens its Bełżec extermination camp in Poland. At least 434,508 people are killed here through year-end.

FDR creates the War Relocation Authority, interns Americans of Japanese, German and Italian descent, many of them legal citizens.

Germans burn the Ukrainian village of Yelino, killing 296 civilians.

First mass transport of Jews to Auschwitz concentration camp include 997 women and girls from Poprad

APRIL 1942

German extermination camp Sobibór opens in occupied Poland. At least 200,000 people are killed here.

77 Uzbek prisoners of war in the Netherlands are shot by Nazi German guards. 24 others had already died as a result of forced starvation.

The Bataan Peninsula falls to the Japanese, and the Bataan Death March begins. As many as 18,000 Allied POWs are murdered via decapitation and worse.

Construction of the Nazi German extermination camp Treblinka II commences in Poland. Around 850,000 people are killed here during the next year.

Doolittle Raid: U.S. carrier-borne B-25 bombers bomb Tokyo.

The Reichstag meets for the last time, dissolving itself and proclaiming Adolf Hitler the “Supreme Judge of the German People”, granting him the power of life and death over every German citizen.

The Jewish Star of David is required wearing for all Jews in the Netherlands and Belgium

And yet…The Dow Jones Industrial Average bottoms April 24, 1942 at 92. Proceeds to “V-bottom”, rises 56% in nine months, pauses, and never looks back. Why?

Source: Bloomberg, FlowPoint

Simply put, the news for the U.S. got “less bad”. Sound familiar?

In May 2942, the U.S. scored its first military victory vs. Japan in the Battle of the Coral Sea. In June 1942, the U.S. completely halted the Japanese advance in the Pacific by decimating the Japanese carrier fleet in the Battle of Midway. Thereafter, the U.S. was able to “island-hop” its way across the ocean towards the Imperial mainland.

But at the time, victory was hardly assured, and hundreds of thousands of Americans – and millions of civilians – perished in the ensuing battles, which were so brutal and bloody, it’s difficult for a modern American to fully grasp. Simultaneously in Europe, the Holocaust was only just beginning its disgusting process, and victory over Nazi Germany was far from clear until two years after the market’s 1942 low. The point of this history lesson is that market bottoms are formed amidst a dearth of “good news”, not during periods of abundant good news. It was true in 1942, 1982, 1987, 2003, 2009 and was true in 2020. It’s more than “difficult” to buy when there’s blood in the streets, to be fearful when others are greedy, to be greedy when others are fearful, and all the other advice investment professional find easy to dispense. But keep in mind how horrific, devastating and hopeless the first half of 1942 appeared, not only for the Dow Jones, but for the future of all mankind the next time you hear “America will never recover from this”, “It’s never been this bad”, “We can’t make enough PPE or ventilators”, or “This time is different”. Contrarian thinking matters. And timing those decisions matters as much. How and when to buy into “bad news” is addressed in our U.S. Equity Market Signals (click here).

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