Stock Market Trends: The Market Want its $$$$
No subprime bailout was met with a major fallout, call it blackmail or extortion. The market wants its money and is shaking down politicians and citizens to get it.
The headlines scream this morning about the single biggest drop in the market’s history; talk about sensationalism. Our hometown newspaper’s front page headline reads, “HOW LOW WILL IT GO!” Yes, yesterday’s drop of 777.68 points was the single biggest point drop, but nowhere near the biggest percentage drop. That honor belongs to October 19, 1987 when the Dow dropped 22.61%, now that hurts.
The Correct Call looked back to see how the market performed following days the Dow dropped 5% or more. Since 1928 there have been 62 single day drops of at least 5%. Fifty of the 62 happened during the depression era, the first on October 23, 1929 and the last on May 21, 1940. On many of the 50 days, the Dow traded down only 3 to 8 points, but was still down more than 5%. We are not sure what to make of those days.
Since the end of WWII, including yesterday, there have been 12 days with the index losing 5% or more.
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September 3, 1946 -5.56%
September 26, 1955 -6.54%
May 28, 1962 -5.71%
October 19, 1987 -22.61%
October 26, 1987 -8.04%
January 8, 1998 -6.85%
October 13, 1989 -6.91%
October 27, 1997 -7.18%
August 31, 1998 -6.37%
April 14, 2000 -5.60%
September 17, 2001 -7.13%
September 29, 2008 -6.98%
Is it just us or is there something in the New York water in September and October? To get an idea of what to expect from the markets from here, we reviewed the Dow’s performance 1 year after each of the benchmark days listed above. Here are the returns:
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1 year after
September 3, 1946 down 0.8%
September 26, 1955 up 5.31%
May 28, 1962 up 25.23%
October 19, 1987 up 25.44%
October 26, 1987 up 19.33%
January 8, 1998 up 15.07%
October 13, 1989 down 5.95%
October 27, 1997 up 16.9%
August 31, 1998 up 45.08%
April 14, 2000 down 1.42%
September 17, 2001 down 8.39%
September 29, 2008 -6.98% ????
As you can see, following most big down days, the losses were mostly mild 1 year later and the returns were worthy of fireworks. Yet most people were probably way too freaked out to act after feeling their hearts in their throats.
Since many headlines, talking heads and politicians are telling us we are either in a depression and don’t know it or headed there, it’s important to note that the market lost nearly 85% of its value at its worst points following the 1929 crash. A lot has been written about the causes of the Great Depression (what made it great?) and The Correct Call doesn’t see that scenario playing out.
Today the futures are hopeful pointing to gains to start the day. Let’s hope we can recover and move above a 10,500 close. Worst case near-term scenarios for the indexes are:
S&P 950
Dow 9000
Nasdaq 1500
While the news might be alarming, it is important to keep things in perspective. With chaos comes opportunity. When the time is right, investors will have the ability to make a killing. Keep reading us, we will let you know when it’s time to move your chips back in. In the meantime, start accumulating cash.
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