On Wall Street, Ghosts of “Massacres” Past
NEW YORK (AP) _ The stock market’s woes so far this month have evoked recollections of past ″October massacres″ on Wall Street.
Few comparisons are yet being drawn between the recent drop in stock prices and the storied Great Crash of 1929.
To equal the magnitude of the 12.8 percent and 11.7 percent drops that took place in just two days, Oct. 28 and 29, of that debacle, today’s Dow Jones industrial average would have to fall nearly 600 points.
But it is much easier to see parallels between the recent slide and the steep drops that occurred in October 1978 and 1979.
From Oct. 13, 1978 through the close on Oct. 31 of that year, the Dow tumbled from 897.09 to 792.45, losing 104.64 points, or 11.66 percent.
And from Oct. 5 through Oct. 25 in 1979, the average dropped from 897.61 to 805.46, for a loss of 92.15 points, or 10.27 percent.
Though the world financial setting may have changed drastically in the past eight or nine years, the worries that brought on the selloffs in the ’70s bore some remarkable similarities to today’s litany of problems: interest rates, inflation and a weak dollar in foreign exchange.
Indeed, the 1978 drop was suddenly reversed on Nov. 1 when President Carter and the Federal Reserve announced a series of steps to defend the dollar, including an increase of a full percentage point in the Fed’s discount rate, to 9 1/2 percent.
On Wall Street that day, the Dow chalked up a then-record 35.34 point gain on New York Stock Exchange volume of 50.45 million shares.
In 1979 the Fed, under its new chairman, Paul Volcker, unsettled the markets by embarking on a new strategy for conducting monetary policy. The central bank said it would no longer seek to manage the level of interest rates, but would concentrate on slowing the growth of the money supply.
Volcker’s twin goals - to get inflation down and strengthen the dollar - were achieved within the next few years, although not without some anxious moments and pain for the economy along the way.
Wall Street’s optily minor wriggles in the long-term chart of the stock market’s progress.
They also acknowledge, however, that with all their similarities, today’s circumstances present some important differences from the ″massacres″ of yore.
In those days, stocks were out of favor as an investment, while inflation had spawned a boom in real estate, gold, collectibles and other tangible assets. Stock prices were still struggling to recover from severe bear markets in 1969-70 and 1973-74, and the economy seemed to be lurching from one crisis to another.
The current decline, by contrast, has come from record highs as recently as late August, after a five-year bull market accompanied by one of the nation’s longest peacetime periods of economic expansion.
The implication, even with the market having fallen more than 13 percent in recent weeks, is that stock prices at their current levels still reflect a lot of high expectations, and could be vulnerable to further setbacks if those expectations aren’t fulfilled.
Still, with the aid of hindsight, one conclusion can be drawn. There were ample rewards in store for stock owners who were able and willing to take a long-term view before, during and after the October massacres of 1978 and 1979.