Nightmare on Wall Street: The Scariest Market Moments in Modern History

2008 Global Financial Assets: Even Safe Assets got Scary

Adrienne Young CFA, Director of Credit Research
Franklin Templeton Fixed Income Canada

As a fixed income manager, I often try to stay away from the scariest parts of the market. But, on rare occasions there are dangers that even the safest investors can’t avoid. And when I considered the core question of this article with my team, we kept coming back to the same moment – The Great Financial Crisis of 2007-2008.

Bond prices suffered steep declines, with some sectors pushing double digit losses. Spiking risk premiums caused credit spreads to widen dramatically, reflecting the level of fear overwhelming markets. And – scariest of all – we had no idea if we could rely on government intervention to save the day (which it ultimately did). Was it scary? Definitely - but it was also a learning experience full of opportunities.

We learned that when people say ‘this time it’s different’, it’s often NOT. We learned that counterparty risk is a thing. Seemingly invincible entities can fall (the mighty Lehman, the great AIG) creating a cascade of issues. And we learned that, even in the world’s deepest and most liquid markets, sometimes it’s necessary to sell what you love at prices you don’t like. But getting to the other side – the opportunity side – is the most important thing.

Lessons Learned

Of course, for those who remained disciplined, this tumultuous period led to TREMENDOUS opportunity. Rather than running (because even the bravest investors can feel panic), investors who did the fundamental credit work and stayed in-market, were rewarded. There were almost four years of falling government rates in the US, almost five years of steady economic recovery, four years of spread tightening, and at least four years of outsized returns for investors. US investors saw a 30% index return in 2009 alone, and Canadian investors saw 16%. Not paltry!

Black Monday: A Single Day Drop of Unprecedented Size and Scale

Ian Riach CFA, Senior Vice President
Franklin Templeton Investment Solutions

Looking back, there are a lot of noteworthy moments that come to mind. But when I relate it directly to the work I was doing at the time – Black Monday stands apart as the scariest moment.

October of 1987 was still early in my career. I was working for a bank, and I was one of the ‘juniors’ assisting on a debt issuance for a large Canadian corporation that we were pricing in US dollars.

Now – coming into this period, there was a sense that markets could be ready for some kind of correction. But nobody anticipated what happened on October 19^th.

On that day– the S&P 500 fell 20% - almost immediately. To see the world’s most indominable equity market fall so steeply and so suddenly was scary indeed. For many, it brought back memories of the crash that triggered the Great Depression and sparked fears of a sequel, which led to intense panic selling amplified by automated trading. Years’ worth of gains were wiped out in hours.

More personally, all of us working on the deal were convinced we were out of jobs given the extent of the carnage in financial markets. Thankfully, fate would not be so cruel.

Lessons Learned

The Federal Reserve under Allan Greenspan was quick to react, stating it would inject liquidity into the market. Later on, in direct response to this event, protective measures were put in place. The industry aligned trading and settlement rules between the stock and derivative markets and implemented so-called circuit breakers to limit trading in the event of a ‘flash-crash’.

Ultimately, the industry won an important vote of confidence. It proved itself to be capable of managing the crisis at hand, while strengthening the ‘safety-net’ to deal with future challenges. And more confidence in the market is always a good thing for investors.

The Day Oil Futures Fell Below $0

Garey Aitken CFA, Head of Canadian Equities
ClearBridge Investments

Having covered Canadian equities for decades, I've witnessed numerous market shocks over the years. But few events have been as jarring as the day oil futures plummeted into negative territory.

On April 20, 2020, the unthinkable happened: U.S. benchmark West Texas Intermediate (WTI) crude futures for May delivery went underwater, hitting -$37.63 per barrel. This unprecedented event left traders scrambling to decide between taking physical delivery of oil or selling their contracts at a loss. With storage facilities overflowing, the reality was stark. Traders couldn’t give oil away, so they started paying others to take oil off their hands.

The causes were both fundamental and technical. Global demand collapsed as the pandemic froze travel and shut down industries. At the same time, a price war between Saudi Arabia and Russia had flooded the market with supply. With storage at Cushing, Oklahoma (the main WTI delivery hub), nearly full and futures contracts expiring, traders scrambled to unload positions at any cost, pushing prices into negative territory.

For Canadian producers, the environment led to further share price declines in an industry that was already under pressure. Western Canadian Select crude traded down to $3.81 USD per barrel on April 21, 2020, well below breakeven for the oil sands industry. Already weighed down by high extraction costs and limited pipeline capacity, companies suddenly found themselves facing another threat.

The Canadian energy sector’s recovery was slow and uneven, lagging until late 2020 when vaccine announcements and firmer oil prices provided a much-needed tailwind.

Lessons Learned

Experienced and well-capitalized traders were able to take advantage of pricing dislocations in oil and gas, while others sought opportunities in sectors that benefited from lower fuel prices, proving once again that the scariest markets can also be some of the most compelling for those who know how to navigate them. In hindsight, the negative oil day marked not just a historic low, but also an important reminder that patience and discipline are crucial to long-term investing success.