Saturday, July 28, 2007

Awful Times to Invest

A look at John Hussman's July 16th weekly market comment of a 'A Who's Who of Awful Times to Invest' brings attention to the following dates:

"December 1961 (followed by 28% market loss over 6 months)
January 1973 (followed by a 48% collapse over the following 20 months)
August 1987 (followed by a 34% plunge over the following 3 months)
July 1998 (followed abruptly by an 18% loss over the following 3 months)
July 1999 (followed by a 12% loss over the following 3 months)
December 1999 (followed by a 9% loss over the following 2 months)
March 2000 (followed by a 49% collapse in the S&P over the following 30 months)

The defining characteristics of these instances were:

1) price/peak-earnings multiple above 18
2) 4-year high in the S&P 500 index (on a weekly closing basis)
3) S&P 500 8% or more above its 52-week moving average (exponential)
4) rising Treasury and corporate bond yields

Depending on how we define the interest rate trends, we can include two additional historical instances of these conditions:
October 1963 and May 1996, both closely followed by 7-10% corrections.

One more instance completes the list: July 2007."

It will be interesting to see if this week's market downturn is the start of a much larger correction.

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