6 ATaleofTwoMarkets
Table1-1. Dow BustsDateClosePoint
ChangePercent
ChangeOctober 27, 1997 7,161.15 554.26 7.18
August 4, 1998 8,487.31 299.43 3.41
August 27, 1998 8,165.99 357.36 4.19
August 31, 1998 7,539.07 512.61 6.37
January 4, 2000 10,997.93 359.58 3.17
March 7, 2000 9,796.03 374.47 3.68Frothy new economy devotees bid up the new stocks and tech
stocks to wild heights compared to their pathetic or negative earn-
ings while eschewing the stodgy old economy stocks that continued
to generate steady earnings increases. The new giddiness subsided,
and the Dow surged while the Nasdaq slumped. But then one re-
covered while the other dropped. Topsy-turvy is the only description
for this wild world.
Anyone seeking to divine some deep logic in these flip-flopping
patterns, however, could stop looking on April 14, 2000, when the
indexes plunged together, the Dow by 6% and the Nasdaq by 10%.
Then both rebounded the next trading day, with the Dow climbing
bac knearly 3% and the Nasdaq moving bac kup 6.6% (and the day
after that experiencing up pumps of nearly 2% and over 7%, respec-
tively).
No deep logic explains these swoons or this pricing divergence,
and all you can really conclude is that Mr. Market was being his
(un)usual self. Staggering as these data are, consider too that in the
first quarter of 2000, the Nasdaq suffered four declines of 10% or
more and then in each case rebounded. In April 2000 alone it re-
corded two jumps that were its largest in history and three drops
that were its largest in history. In the late 1990s and early 2000s,
Dow busts were equally commonplace, as other drops exceeding 3%
show (see Table 1–1).
The Dow busts of August 1998 were particularly potent: They
wiped out all the gains the Dow had made during that year. So was
the March 2000 bust: It set the Dow bac kto where it had been
about a year earlier.
If you prefer to focus on Mr. Market’s euphoria, take the bursts