A Look Back at a Great Bull Market

Twenty years ago on this date, the stock market began what would become one of the most momentous climbs in Wall Street’s history.

The great bull market of the 1980s, which became the even greater bull market of the 1990s, was born Aug. 13, 1982, when the Dow Jones industrial average jumped 11.13 points, or 1.4%, to 788.05.

It was evident to probably few investors at the time, of course, but the previous day the Dow finally had bottomed after mostly languishing for the previous six years--a victim of high inflation and high interest rates, weak corporate profits and a general sense that American power was on the wane.

True to historic form, the bull market began while the economy still was mired in recession, and while many investors were sure that stocks would never again have appeal. But inflation was on the decline, the Federal Reserve was slashing interest rates, and many companies were in the midst of wrenching cost cutting that would set the scene for the profit boom of the mid-to late-’80s.

By the end of 1982 the Dow was at 1,046. By the end of 1986 it reached 1,895, and by the end of 1989 it was at 2,753, despite the 1987 market crash. On Monday the index closed at 8,688.89.

Twenty years from the 1982 market bottom, the Dow’s price gain stands at 1,018%. If dividends earned along the way are included, the return is substantially higher.

What about the next 20 years? Market historians note that the key difference between the market today and the market of August 1982 is that so many blue-chip stocks then were historically cheap, valued at single-digit price-to-earnings ratios.

Today, by contrast, the average blue-chip P/E ratio is about 18 based on estimated operating earnings for 2002.

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Two Decades Later

One of the greatest bull markets in history began quietly Aug. 13, 1982, one day after the Dow Jones industrial average bottomed at 776.92. Here’s a look at stock indexes and other investment gauges, then and now.

Aug. 12, Aug. 12, 20-year Index/item 1982 2002 change

Stock indexes

Dow Jones industrials 776.92 8,688.89 +1,018%

S&P; 500 102.42 903.80 +782

Nasdaq composite 159.84 1,306.84 +718

NYSE composite 58.80 487.80 +730

DAX index (Germany) 496.40 3,647.13 +635

Nikkei-225 index (Japan) 6,927.69 9,747.82 +41

Bond yields

30-year T-bond 13.15% 5.07% -8.08 pts.

10-year T-note 13.55% 4.21% -9.34

2-year T-note 12.95% 2.07% -10.88

Commodity prices

CRB commodity index 228.18 214.55 -6%

Gold futures (per ounce) $338.00 $314.10 -7

Silver futures (per ounce) $6.42 $4.59 -29

Source: Bloomberg News