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Investing In our first installment of The Visual Market, we looked at the Dow -- 1930 to the present -- with a 1-year projected growth curve. In last month's installment, we looked at the major indexes from 1984 -- when the NASDAQ hit The Street -- to the present, including 1-year projected growth trends based on overall performance. We noted then a number of 'slides' in the market during those years, viz., "the Crash of '87, the recession during 1990-1991, the slide in Q3-Q4 1998, and, of course, the dramatic market turn-around of earlier this year." And we promised to take a closer look at those Bears in subsequent issues. This issue, then, is the first installment in keeping our promise ... a closer look at the Crash of '87. ... As with our previous Visual Market installments, in order to make for easier comparisons between and among the various indexes, we are using our Crashes & Recessions:
1984 - Present One of the interesting numbers to come out of last month's study was the 1-year trend- line projection for the NASDAQ, which placed it well below the then- current level. When we started up-dating the research data on November 6th, the NASDAQ had opened at 3469.35. But the projection figures we came up with placed it below 3000 for November of next year, a figure that represented a nearly 19% decline from the then-current level. It struck us as somewhat improbable at the time. But in the midst of writing the article, the NASDAQ continued its precipitous decline, falling below the 3000 mark, and continuing its drop, with a weekly low of 2645.29 for the week of 27 November, and an intra-day low of 2523.04 on 30 November. We mention this here because one of the questions that is probably at the back of many people's minds right now is how long the current 'recession' might last. Of course, there's no way to definitively predict that, but a look at the Crash of '87 can provide some indication of just how long a modern market pull-back can go. As we began in our previous installment, we are continuing to use an index at 1.0 on 8 OCT 1984 for each of the major markets {by dividing the then-current level of an index by itself}, in order to make for easier comparisons between and among their relative performances.
Highlights: Before the Crash: Prior to the Crash of '87, the market had been running up for nearly five years. After a one-week gain of better than 10% for the Dow on 16 August 1982, the markets began a run-up that lasted, almost unabated, until the peak prior to the crash. By August 1987, the Dow, S&P and the NYSE had posted average weekly gains of 0.46%, for an average cumulative gain of more than 327%. Even the then-fledgling NASDAQ, which had not made its debut until October 1984, had average weekly gains of 0.41% and posted a cumulative gain of more than 290% in three short years. But as you can see from the chart above, that run-up came to a rather abrupt halt in October 1987. The largest weekly loss for all of the major indexes was posted on 19 October of that year, with an average loss of 14.26%. However, the peak for each of the indexes had actually come two months earlier, in mid-August, by which point the Dow had climbed from its August 1982 level of 788.10 to an astounding 2709.50. And the NASDAQ, which debuted at 246.20 in October 1984, had reached 455.20. The Crash: The table below shows some of the basic Crash data:
As we mentioned, the pre-Crash highs came in mid-August. In fact, each of the major indexes reached their respective peaks on the same date, a fact which will not hold when we look at some of the succeeding Bear markets. By the 19 OCT date of the largest weekly losses, the indexes cumulatively had already given up more than 26.5% of their August high values, and the Dow alone, 28%. The markets continued to fall through November of that year. And on 30 NOV, each of the indexes posted its low, with the Dow down to 1766.70 -- a weekly average it has first broken in mid-March of 1986 -- and the NASDAQ was down to 292.90 -- a level it had reached originally in late June of 1985, less than a year after its debut. By the time the markets hit bottom, cumulative losses for all indexes averaged more than 34%. The Recovery: Depending upon how one views such things, recovery took between two and three years. The Dow did not see the 2000 mark again -- which represented less than 75% of its high point value -- until mid-February of the following year, and it did not manage to stay above that mark on a weekly basis until the end of May. The NASDAQ on the other hand recouped that much value more quickly, passing the 335 mark in early January and holding onto its gains. However, none the major indexes was able to reach its pre-Crash highs again until nearly two years later. By the third week of August 1989, the Dow had managed a weekly average of 2732.4, while the NASDAQ reached 457.4 slightly earlier at the end of July of that year. Even with that, however, neither market was able to hold onto the pre-Crash highs they'd reached. Later that year, in October, they did manage some consecutive weeks above these marks. However, it was not until well into Q1 of 1991 that either the Dow or the NASDAQ managed to pass and remain above their August 1987 highs.
Viewing the Charts: The charts were all compiled with Microsoft Excel from weekly market data for the specified periods. The charts which appear on this, the main Visual Market page, are not intended to be the best quality. But for any fuzzy chart, you can simply click on it for the larger version [best viewed at 800x600 or better] ... or, if you'd like your own copy, simply right-click on the chart below and choose "Save Target As." From there, you simply pick a folder on your computer where you'd like to save it.
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