An Historic Closing for the Dow
January 5, 2011
Today’s 11,723 closing level in the Dow Jones Industrial Average matches the closing level on January 14, 2000. The index went downhill after that date, the culmination of a nearly 17-1/2 year bull run during which the DJIA soared 16.9% per annum on average from 777 at the close on August 12, 1982. In hindsight the single-day 22.6% plunge on October 19, 1987 was no more than an freak arrhythmia in the market’s pulse. From 1739 at the end of October 19, 1987 to 11,723 on January 14, 2000, the market also advanced at a 16.9% per annum pace. So at 11,723, the blue chips have finally clawed back to Square One.
If the market breaks upward from here and doesn’t look back, investors will have gotten off lightly. Eleven years without net growth in stock prices is actually a short time for this kind of consolidation. It took until late in 1954 for the DOW to recover to its September 1929 peak of 381. Later between a close of 735 on December 13, 1961 and 777 on August 12, 1982, the market recorded an average net advance of 0.3% per annum over more than 20.5 years. It is the nature of the market to alternate between prolonged periods of excessive price growth and equally prolonged spans of see-sawing swings without any net progress.
One of the niceties of the DOW closing at the identical ending level of its 1982-00 bull run is that comparisons with other equity indices can be made for the period since January 14, 2000. The technology-intensive Nasdaq, for example, remains at 2702, far below its peak in March 2000 of 5049 or its end-1999 level of 4069. The German Dax closed at 7173 on January 14, 2000, 3.4% above today’s close, and the British Ftse was 6603 then, 9.2% higher than today’s level. The Canadian TSE, on the other hand, is 60.3% higher now than it was on 01/14/00. Then there is the woeful Japanese Nikkei. By January 14, 2000, the Nikkei at 18,957 had already declined on balance at a 6.9% annualized rate from its 38,916 peak at the end of 1989. With a close of 10,381 today, the Nikkei has continued on net to lose 5.3% per annum over the last roughly eleven years.
Is America’s stock market in fact poised for a new bull run? Or will a look back from the vantage point of 2025 or 2035 classify the markets firm tone now as just one of the ups in a multi-decade period of ups and downs to nowhere? The Dow’s own history and Japan’s experience during the past two decades suggest that the second possibility cannot be dismissed.
Copyright Larry Greenberg 2011. All rights reserved. No secondary distribution without express permission.
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What was the DOW at on January 1, 2011?
Well, the markets were closed that day but ended 2010 at 11578.