Bottom of the stock market is in… If history repeats

On October 12, 1990, this was front page news in the New York Times:

Stocks fell again yesterday, partly in reaction to a 63 percent dividend reduction by Chemical Banking, the nation’s sixth-largest banking company. The Dow Jones industrial average ended the day down 42.82, at 2,365.10, a 17-month low.”

Quoted further in the New York Times article was Merrill Lynch chief market analyst, Robert J. Farrell.

“We do not think, however, that the bear market has run its course and would treat any recovery in the next couple of months as a temporary respite in a major downtrend.”

But that October day would mark the bottom of a short-lived bear market, and the beginning of one of the most extraordinary bull markets in world history.

Similarities between 1990 and 2022

The stock market declines in 1990 were widely viewed as a consequence of soaring oil prices, Iraq’s invasion of Kuwait, rising interest rates, and economic uncertainty.

Sound familiar?

The bear market has been referred to as a forgotten bear market, perhaps because of the euphoria that quickly ensued and perhaps because of the drawdown.

1990 saw a peak-to-trough drawdown that was just shy of 20% (19.8% to be precise). 20% is usually seen as the benchmark for a bear market.

Right now, in October of the 2022 bear market, the Dow Jones is down around 19.5% peak-to-trough.

Stock market bottom & the beginnings of a remarkable bull market

Despite the significant doom and gloom that was present in October 1990, euphoria would soon grip the stock market.

Over the next 9.5 years the Dow Jones gained more than 400%.

“This bull market coincided with good economic times; robust job growth in the US and a tax relief act made certain stocks attractive. Technology companies boomed as the internet took off and culminated in a powerful bull market that went to extremes before collapsing in early 2000,” says Schroders’ David Brett.

Will history repeat? Are we in the midst of what could be another forgotten bear market?

Someone ask Robert J. Farrell.

The best investors will tell you, don’t try pick the bottom of the stock market.

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