Kiplinger: "A Diary of a Bear Market" (1973-1974)
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Selected highlights.
>>> A Diary of a Bear Market
By Robert Frick
1974
September 2 (Dow, 679)
Despair abounds. A Newsweek article ("Is There No Bottom?") asserts: "The plain fact is that there is simply not enough good economic news to sustain a real market comeback."
October 1 (Dow, 605)
Capitulation. A story in Fortune titled "A Case for Gloom About Stocks" lays the blame for the bear market on inflation and says the fall might not be finished. In the course of a few months the anticipated rate of inflation for 1974 has risen from 5% to 8% and new projections are coming in even higher. The prime lending rate of banks stands at a prohibitive 12%, and rumors circulate on Wall Street that another Arab oil embargo is in the works. Fortune sees more gloom and doom ahead -- this from the magazine that less than two years earlier had proclaimed, "The flush of robust prosperity is suffusing the economy."
October 4 (Dow, 585)
Another down day -- the 11th in a row. In the past three sessions, the Dow industrials sank below the 600 level. Now there seems to be no bottom, and the sense of defeat on Wall Street is almost palpable. Word on the floor of the New York Stock Exchange is that some institutional stock portfolios are for sale in their entirety.
But Friday, October 4, becomes, figuratively speaking, the last down day. On Monday the Dow will rebound smartly, and go up again on four of the next five days. The bear market of 1973-74 is over, 21 months after it began. At 585, the Dow industrial average is off 44% and won’t regain the 1051 level set on January 11, 1973, for another eight years.
And all around lies the wreckage left by the financial storm. You can buy McDonald’s for $21 (down 72% since January 11, 1973) and Coke for $46 (down 69%). If Disney was a good value when its P/E stood at 70, today it’s a steal at only 13 times earnings. Avon, down 85%, saw its P/E plop from 63 to 9.
No longer will investors refer to such stocks as the Nifty Fifty. For that matter, a lot of people will never dip their toe in the stock market again, and those who do stay in will bear invisible scars from this experience for decades.<<< |
