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Wall Street History
https://www.gofundme.com/s3h2w8
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08/18/2006
Summer's Over
[Next piece...Sept. 1]
Time to look ahead to September and October, filled with history
and volatility, though long-term investors should probably just
cover their eyes and stick to the plan.
September is the worst month of the year in terms of market
performance and it’s not even close.
Monthly Performance / September
S&P 500 -0.7%
Dow Jones -1.1%
Nasdaq -1.0%
[Dow and S&P since 1950; Nasdaq since 1971]
October is ‘up’ but there are five or six months that are better,
depending on the index.
S&P 500 +0.9%
Dow Jones +0.6%
Nasdaq +0.6%
But I was looking at the Stock Trader’s Almanac and it’s easy to
forget just how volatile Sept. / Oct. were back in 1997-98, during
the Asian / Russian currency crises and the Long-Term Capital
debacle, though in the case of Russia and LTC, the market in the
Sept. / Oct. 1998 period powered much higher after the crises
appeared to have been resolved in August.
As for October, of course it’s known for 1929, 1987 and a 554-
point drop in the Dow, 7.2 percent to 7161, on Oct. 27, 1997,
during the Asian crisis. In the case of ’87 and ’97, these
represented great buying opportunities as the market in both
instances was up substantially one year later.
And while we’re at it, following is a bit of market commentary
by Floyd Norris of the New York Times, Oct. 28, 1997.
“A worldwide plunge in stock prices erased more than 7 percent
from the Dow Jones yesterday and forced the New York Stock
Exchange to halt trading. The only other interruptions like this
came after the wounding of President Ronald Reagan and the
assassination of President John F. Kennedy.
“No one knew just how far the market might have fallen had not
market rules – adopted in the wake of a stock market crash 10
years ago – required the exchange and other American stock
markets to close at 3:30 PM, half an hour before the scheduled
4 PM closing bell.
“The tumble further unnerved Asian markets as trading resumed
there. After the midday break today, Hong Kong stocks were
down more than 12 percent – the sharpest fall since 1989.”
Tokyo lost 4.3 percent to 16,312.
“The overnight fall on Wall Street raised concerns among
investors in Asian markets that a prolonged downturn in the
United States stock markets would reduce consumer demand for
Asian exports .
“As Hong Kong stocks plunged this morning, Tung Chee-hwa,
the chief executive of Hong Kong, called a crisis meeting of his
Cabinet. Afterward, he said he considered the plunge to be
temporary, telling reporters that ‘our fundamentals are strong,
that is the most important thing.’ .
“The latest plunge has been somewhat of a surprise to most
American equity analysts. They had been closely watching the
Federal Reserve Board and the economic statistics for any sign
of rising inflation and of a Fed inclination to raise interest rates.
There is little sign of danger on those fronts.
“Instead, ‘The fear is of profit deflation emanating from Asia,’
said Doug Cliggott, the chief equity strategist at J.P. Morgan.
Since July, several Asian currencies have fallen sharply, and
more recently stock markets have followed. It appears that much
of Asia, the world’s fastest-growing region for much of this
decade, is likely to see little if any economic growth in the near
future. There is a risk that prices of many goods will fall as
countries compete for dwindling export markets .
“Since the Dow peaked on Aug. 6 (1997) at 8259.31, it has fallen
13.3 percent. This is the first time since 1990 that the Dow has
suffered a drop of at least 10 percent, based on daily closes. In
the 1990 drop, which came as the country entered a brief
recession and as Iraq invaded Kuwait, temporarily driving up oil
prices, the Dow fell 21.2 percent in less than three months .
“Big Board volume was 685.5 million shares, the largest ever .
“Both the New York Stock Exchange and the Nasdaq stock
market said their systems worked well. It appeared that most
people who wanted to trade – at least before the markets closed
early – were able to. In 1987, that was not the case. ‘The panic
of 1987, which I think was fed by the fact that phones were not
being answered and people could not find out what prices were,
was absent here,’ said Frank Zarb, the president of the NASD .
“Yesterday represented the first real test for so-called circuit
breakers, added after 1987 in an effort to insure that prices would
not plunge without reason and to give the public a chance to
assess lower prices and consider buying stocks at cheap prices .
“The most important test of the circuit breakers will come this
morning when the market reopens.”
The next day the Dow Jones rose 337 points.
But since I’m in the Times’ archives (and paying for the
privilege) I see that on Nov. 24, 1997, the Dow dropped 113
points to 7767.
Jonathan Fuerbringer reported in part on Nov. 25, 1997:
“The tug-of-war continued in the stock market yesterday, with
those worried about the economic fallout from Asia’s financial
turmoil winning this round .
“The stocks of companies exposed to Asia remained on their
roller coaster as the sentiment about the outlook for Asia and its
impact on growth, earnings and inflation here changed once
again.
“Down sharply yesterday were Citicorp, J.P. Morgan and Chase
Manhattan. They all have exposure in Asia and rallied sharply
last week as investors seemed to discount the Asian impact .
“The apparent trigger for yesterday’s sell-off was the formal
announcement of the closing of the Yamaichi Securities
Company, the fourth-largest brokerage house in Japan .
“ ‘Every now and then we get a reminder that there is this
financial crisis going on in the Pacific Rim and it is extremely
serious,’ said Hugh Johnson, the chief investment officer at the
First Albany Corporation.
“Mr. Johnson is in the group of stock strategists expecting the
fallout from Asia to have a significant drag on the American
economy and corporate earnings .
“He also said that the recent decline in long-term interest rates
coupled with a rise in short-term interest rates is a signal that ‘the
outlook for the U.S. economy is getting darker.’ This narrowing
spread between short-term and long-term interest rates has
occurred before previous slowdowns of the United States
economy.
“But Joseph Battipaglia, chief investment strategist at Gruntal &
Company, is optimistic, making him and Mr. Johnson an
example of how hard it is for individual investors to assess the
outlook today.”
A year later, the Dow Jones closed at 9116 on Nov. 30, 1998,
even after dropping 216 points on the last day of the month; or,
17% higher than a year before. Advantage Battipaglia.
It’s always useful to go back and see what the experts were
saying during times of market turmoil. While the language
seldom changes, there are still lessons to be learned.
As for this Sept. / Oct., since so much of the focus is on the
Federal Reserve these days and inflation data, the Fed’s
meetings on Sept. 20 and Oct. 24/25 will be closely followed.
Wall Street History will return in two weeks.
Brian Trumbore
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