B.C: Historical Perspective on Three Down Years
09-Dec-02 00:40 ET
[BRIEFING.COM - Robert V. Green] It seems unlikely that 2002 will wind up as an "up" year. That means three straight down years for the market. It has only happened twice before in modern history and hasn't happened since 1941.
The Last Three Years
Unless something dramatic happens, it looks like 2002 will end up as a down year for all three indexes. Here is what the three years would like if the year ended now.
Year S&P 500 Value Total Return
2002 912.23 -20.5%
2001 1,148.09 -11.8%
2000 1,320.28 -9.0%
1999 1,469.25 20.9%
Note: Total return includes reinvested dividends. 2002 calculated without dividends.
These three years follow the greatest period ever in the stock market, with five years higher than 20%, a previously unmatched run, unparalleled in market history.
Historical Perspective
There have only been two previous time periods since 1900 when the market has had three or more consecutive years in decline.
The most recent was the 1939 to 1941 time period, as shown in the following table.
Year S&P 500 Value Total Return
1941 8.69 -12.8%
1940 10.58 -10.7%
1939 12.46 -1.1%
Note: Return includes reinvested dividends.
In the following year, 1942, the first year of America's involvement in World War II, the S&P 500 provided a total return of 19.2%, with the next four years being very strong. In fact, the market doubled from 1942 to 1946, rising from 9.77 to 17.36 with 6% dividend return each year.
The only other sequential year declines were during the Great Depression, as shown in the following table.
Year S&P 500 Value Total Return
1932 6.92 -8.6%
1931 8.12 -43.8%
1930 15.34 -25.1%
1929 21.45 -8.3%
Note: Return includes reinvested dividends.
Most people associate 1929 as the year of the great stock market crash and forgot that the subsequent years were completely devastating. Although the October 1929 crash did immediately ruin many investors, because of 10% margin levels, the following years destroyed even more wealth.
In 1933, however, the market aggressively rebounded with a 49.9% total return.
The Past Is In The Past
The market has no memory.
While there is some negative sentimental effect from three sequential down years, because it discourages the flow of money into stocks, the prospect of three down years does not mean the market will be down again in 2004. The market always looks ahead.
Of course, there is also no guarantee that next year will be an up year, simply because history does not show many examples of multi-year declines. While some people will argue that the future is bright, because the only other time we have had four down years was the Depression, and we are not in a Depression, there is no reason why an economic slowdown could not drive the market down in 2003.
Nevertheless, in a few short weeks, there will probably be a lot of hoopla made about the fact that we will have three down years, when the end of the year finally comes.
Of course, three weeks from now, when it happens, it won't be news to you, the Briefing.com reader.
Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com |
