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---------------------- Forwarded by Scott Neal/HOU/ECT on 04/04/2001 10:14 AM
--------------------------- "scott neal" <sneal12@mindspring.com< on 04/04/2001 12:12:18 AM To: <Scott.Neal@enron.com< cc: Subject: bear markets Unnatural History [IMAGE] If you think the market can't get much worse, history says you're wrong. [IMAGE] OpenFund Commentary [IMAGE] Indices analyzed in this post: Dow Jones Industrials NASDAQ Composite NASDAQ 100 NASDAQ Volatility GSTI Multimedia Networking GSTI Semiconductor GSTI Software AMEX Biotechnology Russell 2000 Wilshire TMV Light Crude Oil Gold 30yr Treasury Bonds Fed Funds Futures [IMAGE] Live audio of this commentary: [IMAGE] Live video from our morning call: [IMAGE] After the last two horrible quarters, many of us are probably telling ourselves that it can't get much worse than it's been. For those of us who believe that as an unquestioned article of faith, let me give you a little history lesson. You'll see that it can get a lot worse than this. For our little history lesson we'll focus on the S&P 500, because that pretty much represents the entire US equity market. Obviously the NASDAQ has had it a lot worse -- but that's only a subset of the total market, and it's fairly concentrated in a single broad sector: technology. In subsequent commentaries the NASDAQ will get its turn in the historical spotlight. Over the last two quarters the S&P 500 lost 19.23%. As horrific as that has been, that actually only ranks 78th out of the 2409 six-month periods since 1800. Believe it or not, there have been 77 that were worse. There were eight six-month periods in which the S&P 500 lost more than 40%. There were 18 in which it lost more than 30%. The very worst single six-month period was the one ending May, 1932, in which the S&P 500 lost an astonishing 52.92%. Of the 77 six-month periods worse than the most recent one, 21 were before 1900, and none of them were during the Civil War. 33 (including the very worst 4) were in the 1930s, in the Great Depression that followed in the wake of the stock market crash of 1929. The worst six-month period in the modern era ranks 13th overall. It was the one ended September, 1974, with the S&P down 32.39%. 4 others were in the 1970s. The most recent period worse than the last six months ranks 73rd. It was the one ended March, 1988, with the S&P down 19.56%. That means that in the 1990s there were no six-month periods worse than the most recent six-month period. This shows that what we've experienced over the last six months is by no means as bad as it could have been, or could still be. But at the same time it shows that market performance this bad is extremely rare. The S&P 500 has done this badly (or worse) only 3.2% of the time over a span of 200 years. But don't let any of that make you think it can't get worse. It can. Of the 77 six-month periods worse than the most recent, the S&P went down further during the next six months 24 times -- losing an average of an additional 18.24%. Okay, so the bad news is that, based on history, we've got about a 1/3 chance of things still getting worse over the next six months. But of course the good news is that we've got, on the same basis, a 2/3 chance of things getting better. But not that much better. Over the 53 times the S&P rose over the next six months, it only rose an average of 18.38%. Even if that happens now over the coming six months, that's not going to make up for the 19.23% loss of the last six months. And don't forget about the bad magic of compounding losses. If you start with a dollar and you lose 19.23% of it, you've got 80.8 cents left. It that then rises by 18.38%, you're only back up to 95.6 cents. History class dismissed. Oh, and there will be a test tomorrow... (and every day). - TOP.GIF - BOTTOM.GIF - audio.gif - vid.gif
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