Today in market history, 1999:
The Dow Jones Industrial Average closes above 10,000 for the first time ever. pic.twitter.com/wD1P8rjd1K
— Ritholtz Wealth (@RitholtzWealth) March 29, 2017
Eighteen years ago today, the Dow Jones Industrial Average closed above 10,000 for the first time ever. But under the surface, some funky things were happening. Here’s Gretchen Morgenson from the New York Times:
A lurking concern, however, is just how narrow the market’s advance has been. A growing portion of Americans’ investment money is devoted to the 30 well-known companies in the Dow and the components of the Standard & Poor’s 500-stock index, which rose near its record yesterday. But many portfolios have not matched the performance of the Dow and the S.& P. That is because a relatively small number of stocks have pulled the indexes higher. The winners have been the best-known stocks with household names, stocks like General Electric, American Express and Wal-Mart Stores.
The number of stocks that are down significantly in the broad market far outpaces the number that are up substantially.
Fully 76 percent of all stocks are trailing the S.& P.’s return by 15 percent or more. On the Nasdaq, 93 percent of stocks now fetch prices 10 percent or more below their highs of the last 52 weeks, while 88 percent of the stocks on the New York Stock Exchange are in that category. Among the S.& P. stocks, three out of four are at least 10 percent off their highs.
According to statisticians at Salomon Smith Barney, the stocks in the S.& P. 500 were on average 22.6 percent off their highs as of Friday, while the New York Stock Exchange issues were on average 33.4 percent below their peaks. Showing just how concentrated this rally has been among big stocks, the Nasdaq stocks are on average 41.8 percent below their peaks. And this calculation factors in many of the hot technology and Internet stocks.
The divergences that were seen towards the end of the tech bubble were so glaring that they will be spoken about as long as people are buying and selling stocks. But investors that decided to cash in their chips after reading this (excellent) article had to wait another 291 days before the market finally stopped going up. Over that time, the Dow rose 20%, which really isn’t a whole lot to miss out on, but the index that everybody cared about, the NASDAQ, went up another 120%!
The point is, even in the “most obvious” bubble of all-time, even with signs “clearly” showing the rally was running out of steam, investors needed heroic fortitude to not jump back in for one last swim. Calling the top is hard, really really hard.