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Published: Tuesday, 7/22/2008

Past trends would suggest stock market hit bottom

Did the stock market bottom out last week? Will last week's 534-point rally in the Dow Jones industrial average continue?

It's way too soon to tell if stocks - which dived into bear-market territory a couple of weeks ago when they fell more than 20 percent from last fall's peak - will rebound into another bull market in the near future.

But, if history is any clue, there's a good chance the market did hit bottom: Often stocks sink to their lowest level, and begin to rise, just when economic signs look the darkest.

This time, there were plenty of economic worries - oil at record levels, home values sinking, the dollar swooning, recession looming, the banking industry in a crisis.

Other turnarounds have occurred in similar times. Gloom and doom help the market find bottoms, it seems.

For example, the nasty bear market of 1973-74, when stocks lost nearly half of their value, occurred during a time of recession, an energy crunch, fears of inflation, and political turmoil (including the Watergate scandal).

But somehow, magically, things started looking better to investors in October, 1974, and the market recovered.

The market fell into another stupor later in the 1970s, and again in the early 1980s.

By August, 1982, investors were worried about recession, budget hassles in Washington, high gasoline prices, inflation, and more Mideast turmoil.

But on Aug. 13 that year, investors suddenly saw the economy in a brighter light and started the great bull market that lasted, more or less intact, for 18 years.

The last bear market before this one started with the bursting of the technology bubble in early 2000 and bottomed out in October, 2002, more than a year after the Sept. 11, 2001, terrorism strikes.

By 2002, stocks had taken a pounding from corporate scandals, major bankruptcies, plunging profits, fears of terrorism, and the imminent war in the Iraq.

At its worst, that bear market took the Dow down 38 percent, the Standard & Poor's 500-stock average down 49 percent, and the Nasdaq composite index down 78 percent.

But just when it looked like everything was going wrong, the stock market turned around in October, 2002, and hit new records by last fall.

If last week was the bottom of the latest bear market, the damage was minimal compared to some big bear markets of the past - the Dow, S&P 500, and Nasdaq all fell about 22.5 percent from their highs of last year.

Different years, different fears. But this looks like it could be a bottom, based on past bear markets.

When the market eventually gets back into bull-market territory, we can look back at the bottom, through a rearview mirror. Was the bottom last week? We'll find out.

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