wmeubank@ocp.kcmo.com
AIC INVESTMENT ADVISORS, INC.
400 South Street, Pittsfield, Massachusetts
(November 3, 1997) STOCK INDICES: On Monday, October 27, the major U.S. equity market indices plunged as markets in Southeast Asia continued to collapse in the aftermath of an increase in interest rates in Hong Kong. Some of the damage caused to equity markets may be more than temporary–unlike the panic that overtook the U.S. equity markets in October of 1987. In any event, a look at the fluctuations in the major averages confirms that the age of volatility is alive and well.
From a peak of 983.12 on October 7, the Standard & Poor's 500 index (S&P 500) retreated steadily through the week ended October 24 and then plunged on October 27–dropping a total of 64.65 points that Monday. From the peak of October 7, the S&P 500 was down a hefty 10.8% and the index nearly penetrated its 200-day moving average at approximately 870.
The Dow Jones Industrial Average (DJIA) failed to better its August 6 record close during October despite the record highs recorded by the NASDAQ Composite index and the S&P 500 index. The DJIA reached a monthly peak of 8178.31 on October 7; dropped approximately 83 points on the 8th; and trended erratically lower through October 24. Following a 13.0% drop in Hong Kong overnight, the DJIA plunged a record 554.26 points on October 27. The decline was the greatest one-day point fall ever in the DJIA, but in percentage terms, the 7.18% drop was only the 12th largest fall on record. The October 19, 1987 collapse was a whopping 22.6% while the combined October 28 and 29, 1929 collapse lowered stock market values a total of 24.5%. After a recovery of sorts, the DJIA dropped nearly 10.0% on November 6, 1929. Nevertheless, the plunge resulted in the DJIA closing substantially below its 200-day moving average which stands at approximately 7450 at this writing.
The NASDAQ Composite index, which is highly impacted by technology issues, closed at a record 1745.85 on October 9 and trended generally lower through October 15th. Thereafter, the NASDAQ Composite displayed some noticeable weakness as technology issues came under pressure on news of moderating earnings and less robust growth in sales volumes. The volatility increased beginning on October 23 and the NASDAQ Composite recorded significant declines on October 23 and 24th before plunging 115 points on October 28 when it closed at 1535.09 for the day. At 1535, the NASDAQ Composite remains approximately 80 points above its 200-day moving average.
Several internal market barometers weakened during October. Among the more significant technical measures that turned lower in late October was the advance-decline line. This technical indicator has dropped in approximately the same order of magnitude as that recorded in the March/April 1997 downturn in equities. Also, the new highs-new lows measure has turned negative, at least for the short term. The NYSE weekly advance/decline line has been trending lower since early October, yet another sign of weakness.
Despite an impressive rally on October 28 which added more than 300 points to the DJIA and 65 points to the NASDAQ, the damage to the market has been significant. It is estimated that the worldwide downturn in equities lowered valuations about $1.2 trillion.
The accompany table shows the major market indices for the indicated dates and percent changes from approximately one month earlier.
Averages 9/30/97 10/28/97 % Change DJ Industrials 7945.26 7498.32 —5.63 DJ Transportations 3179.73 3099.83 —2.51 DJ Utilities 238.37 240.23 0.78 Standard & Poor's 500 947.27 921.15 —2.75 S&P 500–1955 Gold 99.83 103.23 3.41 NASDAQ 1685.69 1600.34 —5.06 Wilshire 5000 9180.20 8899.85 —3.05
Investors should maintain existing equity positions assuming that not more than 65.0% of the portfolio is committed to equities. Dollar averaging programs investing in no-load mutual funds should be continued without interruption despite the current market uncertainty.
Richard F. Maloney
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com