What Mattered in Money: The Big 10
Pulling together the accompanying list of the century’s biggest milestones in terms of Americans’ finances, we chose to leave off the stock market’s tremendous advance.
The effects of stocks’ gains are on the list--the rise of mutual funds and the boom in 401(k) retirement accounts, for example--but not the advance itself.
Our reasoning: Bull markets are nothing new; they’ve come and gone not only in this century but in every century, in every financial asset or hard asset that has ever been traded among humans.
Still, some investors may well argue that this stock bull market, when it finally expires, should get its own special display case in the Museum of American Financial History (yes, there is such a place, in New York City).
This one is unquestionably different from all bull markets that have gone before, at least in this century.
For starters, it is now the most spectacular bull market of all as measured by the price changes of major market indexes.
The Dow Jones industrial average, which on Friday set an intraday record high of 11,383.74 before closing at 11,257.43, now has rocketed 376% from its low of 2,365.10 reached on Oct. 11, 1990--the end of the last official bear market on Wall Street.
That gain eclipses the 344.5% advance the Dow scored in the bull market of the Roaring ‘20s.
It also far outdistances the 250.4% surge in the Dow from 1982 to 1987.
This bull market also has set a record for tenure: 3,353 days and counting versus 2,138 for the 1920s’ version.
(All of these statistics are based on the assumption that an official bear market--that is, the down-market phase that takes up the space between two bull markets--doesn’t occur until the Dow falls more than 20%.
(The Dow came within an eyelash of that magnitude of decline in late-summer 1998, but didn’t cross the threshold.)
The ‘90s bull market has distinguished itself in many other ways as well. It has broken several long-standing rules that in the past had been viewed by many investors as inviolable.
The dividend yield on the Standard & Poor’s 500 stock index, for example, wasn’t supposed to fall below 2.5% without presaging a serious bear market.
But rising stock prices pushed the S&P; yield (annual dividend divided by share price) below that level years ago. It now stands at a mere 1.17%.
Stocks’ price-to-earnings ratios also have soared, of course, and have remained at high levels (the S&P; average P/E: about 28, based on estimated 1999 earnings per share) that many market veterans argued three years ago were unsustainable. But sustain they have.
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And why not? many investors now argue. What is a bull market except a reflection of the collective optimism of a nation?
What’s not to like about the U.S. economy, for example? Not only is it booming, but the benefits of that boom are seemingly everywhere: falling crime rates, shrinking welfare rolls, rising disposable income, etc.
For that matter, what’s not to like about the global economy, which finally appears to be on a path of strong growth, paced by Europe and East Asia?
No wonder stock markets worldwide--not just the U.S. market--are having a great year. In this environment, the market’s bulls say, it would only be odd if U.S. stock prices weren’t extending their decade-long advance.
Meanwhile, look at inflation, still subdued despite the burgeoning global economic expansion.
Yet as the Dow and other major indexes have continued to surge this year, even some of the market’s biggest fans concede that it’s increasingly relevant to ask whom, exactly, this bull market is for these days.
Certainly, the market’s run in total during the ‘90s has enriched the masses. The average U.S. stock mutual fund’s value has quadrupled since 1989.
The value of all U.S. stocks, as measured by the Wilshire 5,000 index, now stands at $13.3 trillion. At the end of 1989, the market’s value was $3.4 trillion.
Yes, the Dow index is up 22.6% year-to-date, and the average U.S. stock mutual fund is up about 20%.
But as anyone in the market today knows, it’s the technology-stock sector that is on fire--and not much else.
Last year, most individual stocks on the New York Stock Exchange and on Nasdaq fell in price, even though the Dow rose 16.1% and the tech-heavy Nasdaq composite index jumped 39.6%.
This year, the Nasdaq index has leaped a stunning 71.2%. But once again, it’s looking as if the majority of individual stocks on Nasdaq as well as on the NYSE will be down for the year.
This is a bull market?
Wall Street’s pessimists say the broad market tells the truth about what’s going on: that the great 1990s bull move really ended a while ago, retired by the usual suspects of rising interest rates and stretched stock valuations.
The continuing hot streak in technology stocks, the pessimists argue, reflects less the collective optimism of a nation than the collective greed of an army of short-term traders.
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An increasingly popular description of what’s happening on Wall Street is that this has become a market of “haves” and “have-nots”--the haves being the companies, and stocks, of the new, technology-driven economy, and the have-nots being most other companies and stocks.
The investment question that looms largest as the century turns is whether this is simply the way things are going to be for a long time to come--with stock valuations for the haves still far below what will (someday) be their peak levels--or whether the market’s highfliers are being set up for a fall of monumental proportions.
Guessing right on this issue, of course, will be the key to many investors’ wealth generation, or lack thereof, in coming years.
For now, it still appears that the bull market that rewrote the rule book may continue to do just that.
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Century’s Greatest Bull Markets
This bull market, which began in October 1990 with the Dow at 2,365, now has surpassed the percentage gain in the blue-chip index during the 1920s bull market. The top 10 bull markets of the century, as measured by the Dow’s price change from trough to peak:
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Tom Petruno can be reached by e-mail at tom.petruno@latimes.com
