Just for fun I did some calculations of the worst inflation-adjusted stock market drops during the 20th century in the U.S. These occurred during 1929-32, 1937-42, and 1966-1982. In each case I took the Dow Industrial's high close and low close and adjusted the low close for the change in the consumer price index since the year of the high close (I used yearly number for this index). Here are the results:
1929 - 1932 down 87%
1937 - 1942 down 59%
1966 - 1982 down 74%
Then I took the high close of the S&P 500 in 2000, namely 1527, today's low close at 683 and also made the inflation adjustment to obtain:
2000 - 2009 down 64%
To match the 1966-1982 episode the S&P would have to drop to 497, about 28 % lower than today's close. To match the 1929 - 1932 drop the S&P would have to fall another 64 % to 248.
To put these last two numbers in perspective you should note that the S&P 500 has dropped nearly 23% during the past four weeks!
NOTE WELL : The first version of this post had two bad arithmetic errors which I have fixed. The net result of the fix is to put 1932 and 1982 farther away than I thought!
13 comments:
Those are some amazing numbers.
About a month ago, I would have thought S&P 525 was crazy, but obviously not so much now.
Hopefully, my acceptance of the possibility of such a low is a good contrarian indicator because I have some long positions that are killing me and I need a rally badly.
Wouldn't the decline be more than that? You'd have to take the percentage off the 2000 high of 1527.
You are correct. I had just caught that error and fixed it when you made your comment. Thanks!
I believe market valuation reached PE 8 at the bottom of each of those date ranges. (PE 10.5 is the average bottom for each down cycle since 1929)
The S&P earnings estimate for 2009 is $64.38.
PE 8 x $64.38 = 515
Carl,
very nice "statistics"!!! I as a graduate in maths naturally like this kind of numbers. Val
Carl, what do you think about Japan? I am thinking since they are like in year 40 of their slide the EWJ might bottom before the U.S Markets, Japan is the only place where there is no housing bubble. they are still recovering from the real estate bubble in the 1980's
"The S&P earnings estimate for 2009 is $64.38."
Dream on. 2009 earnings for the S&P 500 will come in at arount $25.00."
carl
the 2 year cycle i noted before
which relates to both the 1929 and 1987 crash is now coming to an end
the dates surrounding this cycle
are march 5th to march 14 th
and the typical low date falls on march 8th which happens to be this weekend . to add to this there is another short term cycle low due march 27th which is when several
bullish cycles begin . lastly i created a long term chart of the dow from 1928 to today places the extreme upper and lower bands around it , the lower extreme band
which we have only been in 3 times since 1942 we are in now , the range of this lower band is 6980
6440 and 5720 . this band has not ever been broken on the down side or the upside for the last 67 years . it has been only penetrated
3 times with now being the 3rd time . the market is very oversold and we are in the lower extreme band and we are coming into a 2 year cycle low which is correlated to both the 1929 and 1987 crash cycles . this gives high odds of a low being registered over the next
2 trading days . and with the next
shorter term cycle low due march 27th and the bullish cycles turning up march 27th my bias is we are bottoming , that said im not sure
if march 27th will be a higher low at this juncture . either way i still feel we are bottoming and due for a rather large rally into june - august back up towards 8500-9700 . what is going on now is just selling on top of selling with many bullish divergences showing up . if at any point i see
a daily closing trin reading above 8.00 im going 100 percent long
good luck
Joe
http://tickersense.typepad.com/ticker_sense/2008/11/2008-eps-estimates-nobody-knows.html
//AR
we may have dropped 23% or whatever in the last 2 weeks..so u r comparing apples and oranges..the other drops are from start to end..
and this is somewhere in the middle
but the drop in percentage terms is lower if looked from the beginning of the drop..And it started dropping around 16 months back...what makes you think 14 months from now we wont be at S&P=250. The 401K is the biggest lie, and now people will defintely reallocate if this recovers..This
recovery wont be fast
Hi Carl - 1982 was a higher low than 1974, so 1974 might be a better point to measure (the other two examples were peak to trough). Heck, I'd be pretty happy with 8 years of a sideways market right now!
Hi Carl,
Well i don't get how you ge you 1966-82 decline of 74% ???
As far as i know, the SP500 was round 80 in the 60's, namely
88.2 in 65, 85.3 in 1966 and it closes 1982 at 119.7
What's true though is that bear market are characterized by declining PE ratios.
PE stood at 21.3 in 1966 and at 7.3 in 1982.
In fact all bear markets ended with a pe between 6 and 12.
Ok, it's true that the 66-82 period was a roller coaster...
Here are some charts
century http://stockcharts.com/charts/historical/djia1900.html
the 60-80 http://stockcharts.com/charts/historical/djia19601980.html
Now we only have a slide...
http://stockcharts.com/charts/historical/images/djia2000s.png
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