- The Washington Times - Tuesday, July 23, 2002

The relentless pounding that the stock market has experienced during the past nine weeks has taken its toll. The Dow Jones Industrial Average (DJIA), which comprises 30 blue-chip stocks, was down 22.5 percent on Friday from its level nine weeks earlier, marking only the fifth time since World War II that this index has plunged more than 20 percent over any nine-week period. Over the past nine weeks, moreover, the share price of each of the 30 blue-chip stocks was down, ranging from more than 35 percent for General Motors, Intel and Home Depot to 11.5 percent for Microsoft. Within the Standard & Poor's 500 Index, 495 companies have seen their stock prices fall during the same nine-week period, as the S&P; 500 itself plunged 23.5 percent. Yesterday, the DJIA lost another 235 points; the S&P; 500 dropped 28 points; and the Nasdaq composite gave up another 36 points, piercing the 1,300 level on its downward spiral.
The market's descent since its peak, of course, is even more staggering. The DJIA, which peaked at more than 11,700 in January 2000, closed below 7,800 yesterday, surrendering more than a third of its value from its historic high. In March 2000, the Nasdaq composite peaked at 5,048. Closing at 1,283 yesterday, the Nasdaq has dropped 75 percent. Meanwhile, the S&P; 500, which tracks the 500 largest U.S. corporations, closed yesterday at 820, nearly 50 percent below its March 2000 peak of 1,527. The Wilshire Total Market Index, the broadest measure of the U.S. stock market, has registered a loss of more than $7 trillion in shareholder wealth since total market capitalization peaked in March 2000 above $17 trillion.
As the U.S. stock market's bubble continues to deflate, it hardly seems encouraging that the DJIA closed at 6,437 on Dec. 5, 1996, or more than 1,300 points below its current level. Later that evening, Federal Reserve Chairman Alan Greenspan gave his memorable speech decrying the market's "irrational exuberance." Nasdaq finished that day at 1,300, a mere 17 points above yesterday's close, while the S&P; 500 hit 744, 75 points below yesterday's close.
The bad news one might infer from the levels that reflected "irrational exuberance" five-and-a-half years ago is the evident fact that there is still more room for the market to slide during its current afflictions. In particular, for those who entered the market during the late 1990s, the losses have clearly been staggering; and they may continue to increase.
On the other hand, even after one takes into account the market losses since early 2000, for those who have steadily invested in equities over the past 15 to 20 years, the stock market has generated astounding returns. When the greatest bull market in history began on Aug. 13, 1982, the DJIA stood at 777; the Nasdaq composite was at 160; and the S&P; 500 stood at 102.
Moreover, while it is common to record the market's plunge from its early 2000 peaks, it must be emphasized that much of the wealth that has subsequently disappeared was "created" during a very brief period. Before peaking, the Nasdaq, for example, increased by more than 100 percent (or more than 2,500 points) in less than 14 months, including a nearly 70 percent advance (or more than 2,000 points) between November 1999 and March 2000. Hovering around 1,300 today, the Nasdaq is still more than eight times its level of 20 years ago. Ditto for the S&P; 500. And while it is true that the DJIA, as it currently hovers around 7,800, is 3,900 points (or a third) below its peak, it is also true that the DJIA is more than 10 times its level when the bull market started not quite 20 years ago.
Where the DJIA will be nine weeks or one year from now is anybody's guess. For the record, in the past, when the DJIA has plunged more than 20 percent over nine weeks, it has rebounded an average of more than 10 percent nine weeks later and an average of 25 percent one year later. On the other hand, the DJIA's 777 level in 1982 on the eve of the bull market was a mere 42 points higher than the DJIA's 735 high mark for 1961, more than 20 years earlier.

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