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Sound Advice: January 12, 2022

Dow Jones Industrial Average: Up 62 times in 48 years

From the low of 577.60 on December 6, 1974, the Dow Jones Industrial Average has advanced by more than 60 times.  Thanks to the OPEC oil embargo of that time (the first of two), a contraction of the U.S. GDP, and interest rates climbing into the teens, the leading market averages dropped more than 45% from January, 1973 to the closing weeks of 1974.

Is the current situation similar?

Hardly.  Oil supplies are plentiful.  Energy sources other than fossil fuels are becoming more important.  Economic activity, although still constrained by supply disruptions, is brisk and likely to accelerate.  Interest rates remain near historic lows and even with probable increases over the next few years they will stay below levels that had prevailed over many decades.

Yes, stock valuations have been high, but in the absence of a trigger event that could derail the ongoing progress of the corporate community, the parade of negative thoughts often engendered by market retrenchment must be dismissed.  We breathe in and out and so does the market.

When clouds appear over Wall Street, the doomsday prophets begin their periodic end-of-the-world rants.  If a pullback signals the end of times, so be it.  But that has never been a good bet.  Witness the aftermaths of World Wars I & II, the Korean War, the Kennedy Assassination, the Vietnam War, the OPEC oil embargoes, 1980’s hyperinflation, and a host of other events that scared, but did not stop, the market’s forward progress.  This time’s no different.

As always, from the start of the time when market values have been measured, the prevailing trend has been up.  But the path is always marked by slippage along the way.  As I’ve pointed out before, intra-year pullbacks of 10% to 15% are the rule, not the exception.  What are rare are advances that continue over periods of years with nary a backstep, though that’s largely what we’ve experienced recently.

Watch the climate, not the weather.

N. Russell Wayne, CFP

Sound Asset Management Inc.

Weston, CT  06883


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