From the Fiendbear Web site (which ran a link to my story yesterday BTW) fiendbear.com
<<The following is an article that ran in Newsweek magazine just about a week before the Dow would begin a heart-wrenching decline that would leave it 40% lower by December of 1974. The negatives that cause the U.S. economy to be hit with a severe recession in 1974 were mostly present, but the Bull chose to ignore them. The similarity of the article below to the ones that are currently making their way through the media is nothing short of incredible.
Newsweek, October 22, 1973
Bull Rumblings
If ever the stock market was vulnerable, last week was the time. Prices had taken two big upward bounces since late summer, and some kind of downward correction seemed inevitable. Then Wall Street was suddenly hit with the double shock of war in the Middle East [Yom Kippur conflict] and the resignation of Vice President Agnew [Spiro].
The Dow Jones industrial average did, indeed, slump seventeen points [about 2%] in two days. But the market quickly choked back its early nervousness and actually managed to close the week with yet another gain.
The 7-point advance in the Dow put that bellwether index at 978.63. With a strong surge in volume, the Dow had jumped 15 per cent [sic] in just two months from its 1973 low of 851.90. And issues on the American Stock Exchange [the equivalent of the Russell 2000 at that time], which had long lagged behind the Dow, were finally able to keep up with that index; in fact, Amex stocks frequently outperformed Big Board [NYSE] issues in recent weeks.
The market's strength in the face of last week's shocks gave brokers and investors alike all the more reason to believe that they were seeing the early stages of a long upward market climb. "It has given all the indications of becoming a bull market," said Bob Perkins, a Paine, Webber, Jackson and Curtis broker in Los Angeles. Perkins was not alone in his thinking. Last week's survey of investment advisers by Investors Intelligence, a market letter, showed 57.6% per cent [sic] of them were bullish and only 25.4 per cent [sic] thought that the market was headed downward. Just a month earlier, the bulls and bears were about evenly divided. And in late June, bears outnumbered bulls 55 per cent [sic] to 36.
Like many a market rally, the current upswing is largely one of
anticipation. Big institutional investors became convinced last August that the Federal Reserve Board was starting to ease up on its tight monetary policy, removing the serious threat of an economic recession next year. So far, there has been some evidence but no conclusive proof of such a change; actual Fed policy decisions aren't disclosed until months after the fact. But as Monte Gordon, head of research at Dreyfus Corp., said, "It's what the market wants to think."
Soon institutions that had been hoarding their cash began to invest freely, especially in shares of the countless stocks that had been beaten down to extremely low levels even as their earnings made glowing progress. Mutual funds, in particular, didn't want their September 30 reports to shareholders to show them holding huge amounts of cash when stock prices were skipping ahead.
How far will the market's current vigor take it? The more optimistic Wall Street analysts predict that the Dow can easily reach the record high of 1,051 that it set last January and might break 1,100 or even 1,200 [!] by the end of 1974. Kenneth S. Rolland, senior vice president at Chemical Bank, is bullish because he says that the basic earning power of stocks is much higher than it has ever been. He expects the DJI stocks to earn a combined $82 a share in 1973. "Even if this drops about 10 per cent [sic] next year, that's around $75 a share, far above the plateau of $60 between 1966 and 1972," he adds. "The market could easily pay fifteen times earnings next year; that would give you a Dow of about 1,100."
The bullish analysts were ultimately correct on their call for the Dow to go above 1,100 but unfortunately they had to wait nine long years before it would finally occur in 1982. Also note that there was a big pick up in Bulls (57.6%) just at the point that the market began its big slide. The same advisory service reported this Wednesday that the number of Bulls was 53.1%.>> |
