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The Dow closed at an all-time high today for the 12th consecutive day, tying the record set back in January 1987.
When I post this table on twitter, the most common response is: “well, we all know that didn’t end well.”
Any mention of 1987 immediately conjures up images of a crash, without any regard to what happened before or after. Let’s set the record straight…
Following the 12-day all-time high streak in January 1987, the Dow would advance another 30.5% before reaching its peak in August. For some context on that gain, a similar move at today’s prices would bring the Dow from 20,837 all the way up to 27,193.
Note: the above chart is Price only, not total return.
Yes, the Dow would suffer a 41% decline from its peak in August to the low in October, but it would actually end the year up 2.2% and a few percent more with dividends.
It would never again trade lower than the October 1987 low, hitting a new price high less than two years later, in August 1989.
From 1988 through 1999, the Dow would only experience one down year: 1990 (-4.3% price return, few percent higher with dividends), during which a recession began. The 1990 – 1991 recession, however, proved to be shallow (8 months) as did the stock market peak to trough decline in 1990 (-22% for the Dow). After the 1990 – 1991 recession, the U.S. economy would go on its longest expansion in history: 10 years (from 1991 -2001). The U.S. stock market would also go on a record boom from 1991 – 1999 in which it advanced for nine consecutive years, the longest run in history.
Is this another 1987? I doubt it. This time will be different because every time is different.
But if it ended up playing out in the same fashion as 1987, would that be so bad?
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This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.
Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.
You can follow Charlie on twitter here.
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