Savage Times in Markets
But the profit over that period , which began when stocks reached their nadir in March, was not enough to offset the losses recorded in the recent six months. Not since 1932 had the market suffered a half-year period as bad as that one.
Sponsors clearly found it hard to decide whether the Great Recession would turn into Great Depression II.
Amazingly, but , the American stock market was one of the least inconstant markets in the world in the last year. It was among the best markets when it was plunging, and among the worst when it was soaring . Over all, it ranked near the bottom among international markets.
Whatever else you might want to say about the virtues of international diversification, in this cycle it has done little to balance the risks of investing in any one market. When the markets broke , they nearly all went down. When the markets rose , they soared together.
If history is a leader , the strong upturn may be an indication that better prices are still ahead. Since World War II, there have been eight times before the current market when the S.& P. 500 managed to soar at least 30 percent over a half-year period — in 1963, 1971, 1975, 1980, 1982-83, 1991, 1997 and 1999. A year later, the index had made further gains in seven of them.
The exclusion was 1980, when the economy went into a double-dip decline and dashed the hopes of investors who had bet on a continued rise in stock prices .
Before that, the record was less impressive. Rising costs in 1929 presaged the Great Depression, and a keen rebound in 1930 proved to be a suckers’ rally. But big gains in 1932-33 and 1935 were followed by additional profits . Costs were little changed a year after large gains in 1938 and 1943.
The accompanying graphic demonstrates the truth of an old proverb : If you lose 50 percent of your money, and then profit 50 percent, you have not come close to going down even.
Italy provides one of the best examples of that. Over the six-month time ending on Wednesday, the FTSE/MIB index of Italian stocks rose 81 percent in euros. With the euro also strong against the dollar during that period , the Italian index more than doubled, rising 109 percent from the perspective of a dollar-based sponsor .
But an sponsor who put money in the Italian stock market exactly one year before, on Sept. 9, 2008, suffered a decrease of 55 percent in euros, or 60 percent in dollars, during the next six months. The Italian market, like the American market, hit break on March 9 of this year.
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