E This Thirty-Year History Of Major Indices Should Tell You Something

Those of you that have been following my previous articles for TalkMarkets know that I like to look at market history to help formulate my ideas regarding the future. And those who have followed my rationale regarding the last 100-years of history, after applying knowledgeable insight and hindsight relating to technology and globalization, know that I feel that market history since the early 1980s is different from any previous period of history in the United States. 

Based upon that I thought it would be worthwhile to gather the data then look at how four of the major U.S. indices performed over the past thirty years. The indices that I looked at were the following: (1) S&P 500; (2) Dow Industrial 30; (3) Nasdaq; and (4) Russell 2000.

Although there is a wealth of insight that one can gather by looking at the data, the hardest part is sorting out what is important and what is not so important. Regardless, in this and the next few articles that I intend to write for TalkMarkets, I will do my best to separate the wheat from the chaff—at least from my own opinion.

Now with that as an introduction, let us start out by looking at how the four indices I mentioned above performed against each other, using January 1987 as the starting point for comparison purposes. The following graph, plots the monthly data for the indices over the last thirty-year period.

The average annual growth rate that I show for each of the four indices represents the calculated “constant rate” that would have been required to get from the starting point to the ending point for each index over the thirty-year period. The CPI rate shown in the exhibit was calculated in the same manner.

Like I said before there is much one can glean from the above exhibit. Including some of the obvious, here are a few points that I think one should take away as a minimum:

(1)  Despite what most people think, markets have not always acted rationally or intelligently. Looking at the historical data, it is hard to see the rationality in the 1995-2000 market boom, just as it is hard to see the rationality in the complete collapse of the market after our most recent financial crisis. Market Exuberance and Market Panic offer great opportunities for smart investors—keeping in mind, however, that market timing is very, very difficult to judge.