Vol. I, No. 5: 2. Investing: The Visual Market -- The Slide of 1990-1991

Investing
The Visual Market
Crashes & Recessions: 1984 - Present
Part 2: The Slide of '90 - '91

We began our look at Crashes & Recessions two issues back, with a close-up on the Crash of '87. Last issue, our first of the New Year, we took time out from the series to review 2000 ... something of a Bear in its own right.

This issue, then, we return to our review of Crashes & Recessions with a look at The Slide of '90 - '91. ... A couple of footnotes before we begin. As with our previous Visual Market installments, please keep two things in mind: 1) We are using weekly numbers, and not daily numbers, both for convenience and in order to iron out some of the more erratic fluctuations in the markets; and 2) in order to make for easier comparisons between and among the various market indexes, we are using our own index, which levels the playing field with a 1.0 rating for each of the major markets as of October 1984 -- with the inception of the NASDAQ. In addition, with respect to the series on Crashes & Recessions, we are using the term 'recession' here simply to refer to significant downward changes in the markets, and not in the technical sense of successive quarters of negative growth. ... That said ...

The slide in Q2 of 1990 may, in some respects, be viewed as an extension of the Crash of '87. As we mentioned in that close-up, it was actually not until Q1 of 1991 that any of the markets were able both to regain and remain above the highs they'd reached before the '87 Crash.

By way of one example, the Dow had hit a weekly high of 2709.50 on 17 AUG 1987, prior to the Crash. And while the Dow touched the 2700 mark numerous times since then, it was not until the week of 21 JAN 1991 that it managed to pass and stay above that mark ... nearly 3 1/2 years later.

Nonetheless, through the first two quarters of 1990, it looked as if all of the major market indexes had not only managed to regain, but to surpass the highs they'd reached prior to the Crash of '87. ...

The Chart: The chart below shows the relative performance of each of the major indexes for the period from 2 APR 1990 through 30 DEC 1991. ...

Note: As we began in our previous installment, in order to make for easier comparisons between and among relative performances, we are continuing to index at 1.0 on 8 OCT 1984, the beginning of the NASDAQ. For each of the major market indexes, the 1.0 is arrived at simply by dividing the then-current level of an index by itself. This becomes the baseline for subsequent measurements.

The Slide of '90-'91
Q2 1990 - Q4 1991

Click on Chart for Larger Image

Before the Slide: Prior to the Slide of '90-'91, the five preceding quarters had seen more than reasonable growth for each of the market indexes. Between 3 APR 1989 and 9 JULY 1990, both the S&P and the NYSE had picked up more than 20% each, at 23.61% & 20.01%, respectively. The NASDAQ lagged a bit at a 14.05% for the same period. But the Dow had managed a rather impressive gain of 29.30%. That translates into average annual returns of better than 15.75% for the NYSE, better than 18.5% for the S&P, and more than 23% for the Dow. The NASDAQ, too, while trailing the others, still posted an average annual return of better than 11%.

Prior to the slide, and unlike the Crash of '87, gains had come in relatively modest though steady amounts. And on 9 JULY 1990, each of the market indexes had peaked -- with the Dow reaching 2980.20, the S&P, 367.31, the NYSE, 200.33, and the NASDAQ, 468.40.

The Crash: As you can see from the chart above, the gains came to a halt in the beginning of Q2 1990. ... The table below shows some of the basic data for the period:

1990-1991 Slide
	DJIA	S+P	NYSE	NASDQ	AVG
Pre-Crash
Max	2980.20	367.31	200.33	468.40
Date	09-Jul-90	09-Jul-90	09-Jul-90	09-Jul-90
Crash
Min	2398.00	300.03	164.42	327.60
Date	08-Oct-90	08-Oct-90	08-Oct-90	08-Oct-90	08-Oct-90
Loss	19.54%	18.32%	17.93%	30.06%	21.46%
Max Wkly Loss	-4.48%	-4.98%	-5.07%	-6.66%	-5.23%
Date	08-Oct-90	20-Aug-90	20-Aug-90	20-Aug-90	01-Sep-90
Recovery
Value	3027.50	369.06	201.29	475.11
Date	27-May-91	11-Feb-91	11-Feb-91	04-Mar-91	14-Mar-91

For all but the Dow, the largest weekly loss for the major indexes was posted on 20 AUG 1990. The Dow that week had dropped -4.23%; but it wasn't until 7 weeks later, on 8 OCT, that the Dow posted its largest one-week decline of -4.48%. Taken compositely, then the indexes showed an average largest weekly decline of -5.23%, significantly less than the average largest weekly loss of -14.26% in the Crash of '87.

The 8 OCT date for the Dow's largest weekly drop, however, did mark the low point for each of the major indexes. During the 3 months between the posted highs of early July 1990 and the lows of early October, the Dow, S&P, and NYSE had given up roughly 18-19.5%, while the NASDAQ had plummeted more than 30%.

Falling below the 2400 mark, the Dow had not seen a number that low since early May of 1989. Moreover, it had first titled the scales above the 2400 mark all the way back in June of 1987. The NASDAQ, bottoming out at 327.6, had not been below that mark since December of 1987; and it had first touched above that mark all the way back in January of 1986.

The Recovery: Depending upon how one views such things, recovery took some time.

The S&P and the NYSE hit their pre-slip highs again in mid-February of 1991. The NASDAQ came close behind in early March. But the Dow didn't find its pre-slip high mark again until late May of that year. ... But that was merely the beginning of recovery. If the criterion is not simply to hit the mark again, but hold it for some time, a somewhat different picture emerges.

While the S&P and the NYSE managed to hold on to their rediscovered highs for at least four and as many as thirteen consecutive weeks beginning in late February, and the NASDAQ in late March, the Dow painted a different picture. It didn't manage to hold above its pre-slip high for four consecutive weeks until the weeks of 19 August to 9 September of 1991. And if the criterion is made a bit more stringent, and we define 'recovery' as holding ground for an entire quarter [13 weeks], then the Dow didn't manage that feat until the thirteen weeks between 23 December 1991 and 23 March 1992 ... more than 20 months after its pre-slip high.

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 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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