March has historically been a month of heightened volatility, with several notable market crashes shaping the global financial landscape. From oil price shocks to banking failures, these events have left lasting imprints on the financial sector, offering key insights for today’s traders.
According to Roger Eskinazi, Managing Partner at Tickmill, a key factor contributing to March’s volatility is the occurrence of “Quadruple Witching” – a trimestral event in financial markets when four different sets of futures and options expire simultaneously. “In addition to March marking the end of the first quarter, quadruple witching has been known to generate significant volume and volatility as traders adjust their positions to manage the expiration of multiple derivatives.”
By examining the causes and consequences of some of the major past market events, Eskinazi believes traders can refine their strategies to better navigate potential future downturns.
Oil price volatility and market decline (March 1986)
In March 1986, a steep drop in oil prices led to significant market turbulence. The collapse was triggered by a global oversupply and a price war between major oil producers. The shockwaves were felt across stock markets and commodity-linked currencies. “This event demonstrated the impact of supply and demand imbalances on financial markets,” says Eskinazi. “Traders today should monitor geopolitical developments and production levels to anticipate potential price fluctuations.”
The dot-com bubble burst (March 2000)
By the late 1990s, speculative investment in technology stocks had fuelled an unsustainable market rally. In March 2000, reality struck as overvalued tech stocks plummeted, erasing trillions in market value. “The dot-com crash underscored the risks of market exuberance and the importance of evaluating fundamental metrics over hype,” Eskinazi explains. “Traders must balance optimism with caution, ensuring that investments are backed by solid financials.”
The collapse of Bear Stearns (March 2008)
One of the defining moments of the 2008 global financial crisis was the collapse of Bear Stearns in March of that year. The investment bank, heavily exposed to subprime mortgage-backed securities, faced a liquidity crisis and was ultimately acquired by JPMorgan Chase for a fraction of its former value. “The downfall of Bear Stearns highlighted the dangers of excessive leverage and poor risk management,” Eskinazi notes. “This serves as a reminder for traders to be mindful of leverage ratios and counterparty risks.”
Escalation of the European sovereign debt crisis (March 2011)
March 2011 saw renewed fears over the European sovereign debt crisis, as Portugal’s government collapsed following a vote in parliament against the austerity package designed to curb the country’s deficit. Financial markets reacted with increased volatility, particularly in European debt markets and banking stocks. “This crisis reinforced the importance of assessing macroeconomic indicators, keeping a close watch on fiscal policies and sovereign credit ratings when investing in government securities,” says Eskinazi.
The COVID-19 market crash (March 2020)
Perhaps the most recent and dramatic March market crash occurred in 2020, as the COVID-19 pandemic triggered widespread economic uncertainty. Global stock markets saw their sharpest declines since the 2008 crisis, with panic-driven selloffs and extreme volatility. “This event underscored the value of diversification and risk management,” Eskinazi states.
As the saying goes, those who cannot learn from history are doomed to repeat it and traders are no exception. “Market history provides invaluable lessons for traders navigating uncertainty, with risk management, informed decision-making, and diversification proving key to weathering any financial storm,” Eskinazi concludes.