Years Ending in '0' Are Zeros for Stocks : LUSENET : TimeBomb 2000 (Y2000) : One Thread


Saturday January 8 12:07 AM ET Years Ending in '0' Are Zeros for Stocks By Pierre Belec

NEW YORK (Reuters) - Watch out for years that end in zero. They're bad for the stock market. In fact, they're often big zeros.

Wall Street was given a taste this week of ``Stockalypse 2000'' as the Nasdaq composite index had a meltdown of 230 points, its largest one-day point loss ever, on Tuesday. The Dow Jones industrial average slumped 360 points in its steepest drop since Russia's loan default rocked global markets in late summer of 1998. By the end of the week, the market bounced back strongly on a wave of bargain hunting.

Still, there was a creepy feeling of deja vu about Tuesday's selloff. For the past 100 years, the first days of the years that end with ``0'' have signaled the start of some nasty bear markets.

In fact, since 1900, stocks have made important highs at the start of most of those years before heading lower.

Peter Eliades, editor of Stockmarket Cycles, a financial newsletter and money management firm in Santa Rosa, Calif., said that in seven of the 10 years since 1900 that have ended in zeros, stocks reached peaks in the first few trading days of the year and then went into a downward spiral.

In some cases, stocks made secondary tops because more important high water marks had already been reached. But in all seven years, stocks slid lower after peaking in the opening days of the year.

And this week, stocks plunged in the second trading session of the year 2000.

The facts:

1900 -- The market topped out on Jan. 2, and the level proved to be the highest of the next 10 months. 1910 -- Topped out on Jan. 3 and the high was not beaten for five years and seven months. 1920 -- Stocks peaked Jan. 3 and the high went unchallenged for five years.

1940 -- Jan. 3 was the highest close of the next five years. 1960 -- Jan. 4 struck the highest finish for 16 months. 1970 -- Jan. 5 was the highest of the next 11 months. 1990 -- Jan. 2 set the peak for the next four months.

``The major market moves, or anything that can be described as bubbles, all seemed to end around the end of decades,'' Eliades said.

Further proof:

Japan's stock market bubble burst on Dec. 29, 1989, and the gold rush that sent the price soaring to a record $800 an ounce ended abruptly in early January of 1980.

It may be hard to explain the market's behavior, but some of the selling in the new year may be linked to Uncle Sam.

``There's a certain tax logic to the centennial pattern, with the major market tops coming during periods when the market had been doing well,'' Eliades said.

This week, investors with capital gains may have been selling for tax reasons, to delay paying the tax on their profits until 2001.

Meanwhile, experts say the jury is still out as to whether Wall Street is witnessing the unraveling of one of the greatest bull markets ever.

The selloff has raised worrying questions because the bull market has been likened to ``Tulipmania'' -- the mother of all market bubbles that sent tulip prices in Holland rocketing 6,000 percent from 1634 to 1637 before crashing. But now, it's Internet stocks instead of tulips.

The tulip boom came undone as prices dropped 90 percent after the ``biggest fool'' had paid the highest price. Suddenly, people realized that they were not investing, but rather betting, on tulip prices.

Indeed, history may be repeating itself. Internet stocks have shot up 1,000 percent or more even though the majority of them have not earned a penny.

Internet stocks recently have made a lot of people rich and that's apparently all that matters to investors. The people who have struck gold over the past couple of years have been ignorant about the meaning of stocks' valuations.

The technology-laced Nasdaq index last year produced an eye-popping gain of 85.6 percent but the betting is that the spectacular rise won't be repeated this year.

Speculative rallies are like rubber bands. They stretch until they break and send stocks reeling.

Still, some Wall Streeters sensed that the market has so much intrinsic support from powerful buyers -- such as (401)k retirement accounts -- that it can avoid a sustained freefall, perhaps indefinitely.

During the brief corrections over the past five years, investors have been reluctant to abandon their stock holdings and the pullbacks have simply been viewed as buying opportunities, which have kept stocks from locking into a sustained downtrend.

But few people will disagree that the meteoric rise in the technology stocks has been overdone.

Many experts say technology shares could go through a major shakeout because the biggest buyers of the ``dot.coms'' have been speculators or day traders -- who would be the weakest source of support in a head-spinning market fall.

Speculators who trade with money borrowed from home equity loans or margin accounts are not exactly long-term investors. They would be the first to run for the exits.

Stock market officials have shown concern about the explosive rise in margin debt. Recently, the New York Stock Exchange and the National Association of Securities Dealers, Nasdaq's parent, sought to tighten margin requirements for day traders.

In November, margin debt soared to 3 percent of disposable personal income, the highest on record, eclipsing the old high of 1.3 percent set before the market crash of 1987.

Raymond DeVoe Jr., market strategist for Legg Mason Wood Walker, said the investors who chased up Internet stocks after a minor dip in November may now be margined up to their eyeballs.

``A lot of people are now concerned about how they stand in their margined accounts after this week's 15 and 20 percent decline in some stocks, and this could bring a vicious circle of selling,'' he said.

DeVoe said the direction of the market is in the hands of Federal Reserve Chairman Alan Greenspan, who is free to raise interest rates at will, now that there are no more distractions from the Y2K computer bug.

After pushing rates up three times since last June, the inflation-fighting Fed deferred another increase in December for fear of adding uncertainty over Y2K.

The Fed's big concern is that skyrocketing stock prices -- one of the powerful forces that have fueled the economic good times -- may come to a sudden halt. The market has made people rich and the wealth effect has fanned the economy's spectacular growth, which, in turn, has fired up corporate profits.

Now the Fed has the tricky job of producing a hoped-for ''soft landing'' by slowing the economy down without putting it into a tail-spinning slide.

Perhaps, blunt force by the central bank could be the thing that will break the back of the bull market -- and at the same time make more believers in bear markets at the end of decades.

For the week, the Dow Jones industrial average was up 25.44 points at 11,522.56. The Nasdaq composite index fell 186.69 points to 3,882.62 and the Standard & Poor's 500 index was off 27.78 at 1,441.47.

(Questions or comments can be addressed to Pierre.Belec(at)Reuters.Com).

-- (, January 08, 2000


And every president that took office every 20 years beween 1840 and 1960 died in office-until reagen didn't. This is a useless statistic. WHy post it here??

-- futureshock (, January 08, 2000.

Y2K or not, the global stock markets will soon crash. Currently Wall Street has a fragile firewall in place, but overseas markets will fail and domino their destruction unexpectedly into the United States of America. Everyone will be caught by surprise, and this will cause the greatest stock sell off ever witnessed in this century.

-- dinosaur (, January 08, 2000.

No statistician worth anything would be willing to make serious claims about something on the basis of 7 out of 10 samples. There are far better reasons for making the arguement that this may be a bad year for stocks. There are also good arguements implying it won't be a bad year.

All those here that are so confident that the market is going to crash should do the same as the survivalists did about Y2K. Put your money where your mouth is. Start shorting a bunch of stocks. If you aren't willing to do so, or don't even know what shorting is, then your stock market talk is pretty much just a bunch of noise.

But if you do this for the whole year, you had better hope you're more right about the stock market than the Y2K doomers were about Y2K.

-- FredBryce (, January 08, 2000.

Don't forget that if a team from the original AFL wins the Superbowl, the market generally has a bad time that year.


-- Wildweasel (, January 08, 2000.

Lot've big talk there FRED BRYCE. Do you have anything of substance to add though? If so what..............

-- kevin (, January 08, 2000.

I first became interested in the stock market in Spring 1999. I began to learn little by little about the economy and grew alarmed when I read that there were many warning signs showing the stock market crash was inevitable: credit explosion, huge trade deficits, negative savings rate, influx of new fiat money flooding the stock market, arrogance and greed ubiquitous among many investors, overconfidence and blind faith in purchasing stocks with no earnings, and so forth. I don't see how a crash can be avoided with such reckless behavior, do you?

-- dinosaur (, January 09, 2000.

WOW dino-sour,

I've been listening to doom and gloom stories my whole life. My father-in-law, rest his soul, did nothing but rant how the market was going to crash. I listened to this for 25 years. I'm done listening to the "nay-sayers." Like I've said, it may correct, but it will recover again. It always does.

I think technology is in it's infancy, and there is money to be made by investing. Screw the dot.coms. There are good stocks to invest in, and mutual funds. Diversify.

Recovering dooomer.

-- (I', January 09, 2000.

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