Historical Movement Of The Stock Market
by Michael J. Moody, C.M.T.
Experience enables you to recognize a mistake when you make it again. --Franklin P. Jones
Perspective is critical for participants in the financial markets. Unfortunately, one's perspective is easily
influenced by the emotions arising from recent price action, all too often leading to poor market decisions
because current price action never continues indefinitely. Further price erosion in a falling market, as well
as additional price gains in a rising market, can always be rationalized in the prevailing emotional
climate. As a result, loss of perspective due to the emotional environment is apt to occur at the worst
possible time—at a significant turning point.
ANTIDOTE FOR MEMORY LOSS
The best cure for such market memory loss is hard statistical data on the history of returns in the stock
market. Figures 1 through 4 use quarterly average total return data for the capitalization weighted
Standard & Poor's 500 Industrials from 1940 to second-quarter 1991 and also display the data in graphic
Consecutive positive quarterly total returns—up moves— and consecutive negative quarterly total
returns—down moves—are shown in extent in percentage terms and duration in quarters. Close study of
this type of data is worthwhile, because being familiar with the statistical record is probably the most
important clue we can have to the future.