19 Years-The Early 90's

Of course we all know with the benefit of hindsight that the war was a stunning success. Some may also know that the market rallied but may not realize by how much or how quickly it moved up. By February 13th the SPX stood at 369.02-a gain of over 16% in 20 investing days. It then consolidated this gain and had another 9% move in an 8 day investment period from 12/20/91-1/2/92. On the one year anniversary of the war, the SPX stood at 418.21-a gain of just over 32% (not including dividends). Much of this gain had been recorded in just 28 days.

The market paused through most of the rest of 1992. A slowing economy, a tightly contested election between Bill Clinton & then President Bush plus the need to consolidate that large 1991 gain meant that stocks were at the same level in November as they had been in January. This pattern of digesting large market profits is similar to what we have experienced in 2004 & 2005 as stocks have been consolidating the grand push off the lows made prior to the 2003 invasion of Iraq.

With the elections out of the way the markets found an excuse to rally. The markets which had suffered some pre-election jitters in October rallied 11% by mid-March. By the end of 1993 the market had advanced about 7% for the year. In March of 1994 I joined the investment firm of William Blair and Co. However, by March of that year the bloom was off the rose as far as stocks were concerned. By the end of March the SPX had declined about 9%. Again in a short period of time (3 months) it had given back its 1993 gain and was trading at November 1992 levels. A slowing economy (actually the end of a mini-recession) higher interest rates and the Clinton Administration’s attempts to exert governmental control over healthcare were the reasons behind this decline.

At the end of my Kidder, Peabody years the SPX stood at 445.76. The day I had walked in the door of this grand old investment firm the market had traded at 250.84. Through a market crash, a war and mediocre economic growth, stocks had still increased 77% (without adding dividends in the equation). If my math is correct this still averages about a 10% annual return. Even so a malaise had settled into the markets. But underneath the surface something wonderful had been percolating. We’ll discuss this in our next post.