The Dow Breaks 2 Bears in 1 Day
Oct 11th 2012 11:30AM
Updated Oct 11th 2012 11:46AM
On this day in economic and financial history...
Think you've been through a bad bear market? The Dow Jones Industrial Average (INDEX: ^DJI) finally rose above 1,000 points on Oct. 11, 1982 to close at 1012.79. The index had danced around the four-digit mark since early 1966, breaching 1,000 for two months in 1972, and for a few days each in 1976 and 1981, but 1982 would be the last time the Dow ever found itself looking up at 1,000.
At the time, it was the second-busiest day in the history of the New York Stock Exchange, and Wall Street insiders expressed widespread optimism. E. F. Hutton strategist Fred Fraenkel told the Los Angeles Times "I think this time we're in for an extended market advance in all the market averages ... I think they could go well beyond their record levels." Richard Hoffman of Merrill Lynch agreed, saying "this is a major bull market." He was right. The next real pause in the Dow's rise wouldn't come for another five years, and that brief drop was quickly surpassed.
President Ronald Reagan, in a speech to Texas Republicans on the same day the Dow broke 1,000, said, "Unlike those before us, we are going to get the job done, and for once, we are going to get it done right." The Los Angeles Times reported:
Reagan consistently has refused to accept responsibility for the recession -- declaring that its roots were generated in the Administration of former President Jimmy Carter. But he clearly was eager to take credit for the stock market surge and recently reduced interest rates.
President Reagan went on to say that "we have pulled America back from the edge of disaster. Our critics say that what we are doing is wrong, but so far they have offered no alternative." However, he reluctantly noted the nation's still-high unemployment level, which at 10.1% was the highest since 1940.
Grab that bull by the horns again
The great bull market of the 1980s and 1990s had only two notable speed bumps. The Dow passed the second speed bump on Oct. 11, 1990, beginning a meteoric rise that would not end for a decade. Eight years to the day from the Dow's conquest of 1,000, the index closed at 2365.10, for a 134% gain. The next decade would go on to obliterate that growth, as the Dow finally reached a peak of 11,221.94 in the spring of 2000 before the dot-com bubble popped.
Traders interviewed by The New York Times on October 11, 1990 had divergent opinions on the extent of the bear market. Merrill Lynch analyst Robert J. Farrell said in a note that, "we do not think, however, that the bear market has run its course and would treat any recovery in the next couple of months as a temporary respite in a major downtrend." Gramercy Capital Management president Joan Lappin took a more optimistic (and correct) tone by saying, "I haven't given up all hope yet. Everybody now thinks we're going off the cliff. But if there's a resolution to the budget -- including a solid effort to close the deficit gap -- we could be in for a solid bounce."
Movers and shakers
IBM (NYS: IBM) was a notable participant in both the Oct. 11, 1982 and Oct. 11, 1990 trading days. Its stock rose 4% to help lead the Dow past 1,000 on the earlier date, and dropped by nearly 8% in the three days ending on Oct. 11, 1990.
Chemical Bank, the corporate predecessor of JPMorgan Chase (NYS: JPM) , was also a lynchpin to both the 1982 rally and the 1990 drop. Both Chemical and the original J.P. Morgan rose nearly 5% on the earlier date as part of a broad banking rally, buoyed by hopes of lowered interest rates. In 1990, Chemical's grim news -- $44 million in third-quarter losses and a massive 63% dividend cut -- forced the exchange to halt trading in its stock for several crucial minutes.
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