Surviving The Challenging Periods In The Stock Market

The steady increase in inflation globally is worrisome, coupled with the surging bank rates and the dripping stocks, making us reflect on similar past times. Periods like the 2008-09 meltdown, the 1987 slump, and notably, the lengthy downtime between 1966 and 1982, especially the 1970s.

The Nature Of The Market

We glanced at the 1966-1982 stock market, which first fluctuated before a lengthy downtime of about 16 years. In early 1966, the Dow Jones Industrial Average surged to $983 and lingered till 1982, when it hit $991.

The S&P wasn’t better off; it hit $108 in late 1968 and remained in that region till early 1973 when it surged to $116 and then lingered again until eventually breaking out in Mid 1982.

Reasons For The Lengthy Downtime

In The 1966-81 downtime, the inflation rate surged from 0.9% to 13.5% between early 1966 and mid-1980. Also, the gas rates increased from 30 Cents to 1 Dollar/Gallon. Consequently, the Federal Reserve increased the bank rates to 20% from 4.6% between 1966 and 1981.

These affected the stock market adversely as the increased interest rates rendered returns from shares and futures unattractive. That explained why the market stalled for about 16 years.

The terror of an intense economic meltdown made the apex bank ease the rate after hiking it initially, only to increase it again to battle surging inflation. According to Sam Stovall, a veteran analyst, the authorities are avoiding this mistake by going all out at once to fight inflation. This will give a sharp V-like or U-like pattern instead of a fluctuating W pattern.

Additionally, Jeff Yastine added that other conditions which affected the market at that time were the top firms then, which were conglomerates, having no real plan to grow. Similarly, Japan was still rising, and the tech couldn’t have much effect then.

Also, Stan Druckenmiller, while chatting with Alex Karp, CEO of Palantir, revealed that the market seems to have completed a circle. He added that glancing back at the boom, which commenced in 1982, all conditions that contributed to the growth seem to be reversed now. He, however, predicted a lengthy downtime if nothing effective is done.

Is Gaining Still Feasible?

The vice chair of Blackstone’s Private Wealth Solution group, Byron Wien, who was very active in the market back then, talked about the state of the market then. He revealed that he started as an analyst back in 1965.

He added that only the outstanding ones who knew how to pick stocks could make money in the stock market back then. However, he made some money then and invested in stocks that yielded well.

According to Wien, between 1966 and 1982, S&P’s average return on investment was 4.1% which revealed those who traded on the broader market gained some returns. Also, returns on investments lessened the adverse effects of the 1970s on traders. The diversification of S&P made it outshine Dow 30.

Further, the return on S&P now is around 1.6% which is not surprising, considering the market situation. There is a surge in share prices, and more firms are repurchasing their shares to avoid more dividend payments. Wien, however, believes the returns will surge later when the firms try attracting investors again.

Regardless of the downtime in the 1970s, some shares performed well. Firms producing food, drinks, health care, and other necessities did well because consumers had no choice but to patronize them.

Similarly, some firms got founded during these periods. For instance, in 1976, Apple Computer got established, Home Depot got established in 1978, and many firms in energy, coal, and chemicals raked in huge sums. However, firms producing avoidable goods and services didn’t perform well.

Investors could play safe by avoiding slow-growing and overpriced stocks. Diversifying is also encouraged. It would be wise to stock pick shares to invest in if downtime like that of 1966-1982 seems to be approaching. It is still possible to gain from the market, but investors must be cautious.

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