Authors:
Historic Era:
Historic Theme:
Subject:
December 1997 | Volume 48, Issue 8
Authors:
Historic Era:
Historic Theme:
Subject:
December 1997 | Volume 48, Issue 8
J.P. Morgan did not have much use for either the stock market or reporters. So when one reporter importunately asked him what the market was going to do one day, he replied, with about equal parts contempt and truth, “It will fluctuate.”
Until the spectacular events of late October, however, the stock market has been doing little fluctuating. Mostly it has just gone up and up and up. After all, I was just into my twenties when the Dow Jones industrial average first hit a thousand, and I was over forty when it finally reached two thousand. Only a decade later it soared, seemingly effortlessly, past eight thousand.
The explanations, of course, have been endless, for that is what today’s financial reporters, like those in Morgan’s day, are paid to do. The American economy is in better shape than it has been in a long time. The computer and globalization are opening vast new opportunities for productive investment. The baby boomers, in their peak earning years and increasingly past their peak child-rearing expenses, are pouring money into stocks and mutual funds to provide for retirement. And so the market keeps rising and rising.
All bull markets come to an end some day. But whether they end with a bang or a whimper can’t be foretold, for the particular economic circumstances are always unique. In the 1920s, for instance, the Dow Jones rose from 68.3 at the end of October 1921 to 381.17 on September 2, 1929. Then the market trended relatively gently downward until late October, when in two wild days, Black Thursday, October 24, and Black Tuesday, the following week, the bottom dropped out. By November 13 the market capitalization of the stocks listed on the New York Stock Exchange, eighty billion dollars in early September, had been reduced to fifty billion, a decline of more than a third.
And while there are now relatively few who personally remember the Crash of ’29, it has become an ineradicable part of the American folk memory. For while it did not cause it, the Crash happened at the very beginning of what soon became the deepest economic depression the modern world has known. By the time the Dow finally hit bottom in 1933, it was barely one-tenth of what it had been less than four years earlier, and virtually where it had been on January 1, 1900. The capital gains of a third of a century had been wiped out.
The bull market of the early 1980s, however, while it ended in a similar great crash, on October 19, 1987, was followed by something completely different. The Federal Reserve, having learned the lessons of 1929, acted immediately to ensure liquidity in the market, preventing the crash from feeding on itself. As a result, the uproar on Wall Street did not greatly affect the American economy as a whole. Indeed, the market almost immediately began to climb again, and today, only a decade later, the crash of ’87 is