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THE SEVERE BEAR MARKET OF 1973/1974

By James J. Holtzman, CFP®, Legend Financial Advisors, Inc.® and

EmergingWealth Investment Management, Inc.®

 

 

 

Since the end of World War II (1945), the S&P 500 has had three Big Bear Markets that suffered losses of at least 40.0%.  Most individuals are aware of the Severe Bear Markets of 2000 to 2002 as well as 2007 to 2009.  What most don’t recall is the 1973/1974 Severe Bear Market.

 

Severe Bear Market Of 1973/1974:

 

As evidenced by the New York Stock Exchange’s Dow Jones Industrial Average which peaked at 1,051.70 on January 11, 1973, the Dow Jones Industrial Average lost 45.0% of its value bottoming on December 6, 1974. 

 

Similarly, during this time period, the S&P 500 fell 48.0% over an overlapping 21-month period.  Its high was 119.87 and fell to its low of 62.28.

 

It was one of the worst stock market downturns since the Great Depression.  The crash came after the collapse of the Bretton Woods system, which occurred over the previous two years, and the eventual United States Dollar devaluation.  As part of this devaluation, on August 15, 1971, the U.S. went off the fixed gold standard price of $35.00 per ounce to a floating price. 

 

The Bretton Woods currency system, which was negotiated just before the end of World War II, established a system of payments based on the U.S. Dollar, which defined all currencies in relation to the U.S. Dollar, itself which was convertible into gold bullion for trade purposes.  During this time period, the U.S. currency was effectively the world currency, the standard to which every other currency was pegged.

 

The crash was also made worse by the outbreak due to the 1973/1974 oil crisis (Arab Oil Embargo) which was caused by the Yom Kippur War.  Many individuals can recall the miserable three-hour gasoline lines to fill one’s tank.  Not helping matters was also the Nixon shock (Watergate Scandal which eventually caused President Nixon to resign). 

 

 

In conjunction with these many issues was a very deep and lengthy Recession that lasted approximately two years.  In the two years from 1972 to 1974, the U.S. economy started with a 7.2% real (after inflation) Gross Domestic Product (GDP) to a -2.1% contraction.  Inflation, as measured by the Consumer Price Index (CPI), increased from 3.4% in 1972 to 12.3% in 1974.

 

COPYRIGHT 2020 LEGEND FINANCIAL ADVISORS, INC.®

 


 

 

Legend’s Fee-Only And Transactions Disclosure:
 

1 Legend Financial Advisors, Inc.® (Legend) is a Fee-Only Advisory Firm. Fee-Only Means Legend Never Receives Any Commissions.

Legend’s Clients Will Not Pay (a) a Transaction Fee (also Known as a Trading Fee or Commission) for Exchange-Traded Funds (ETF’s) and/or Exchange-Traded Notes (ETN’s) as well as Exchange-Traded Equities through Virtually All Custodians that Legend Utilizes.  However, Open-End Mutual Fund Trading Fees Are Charged by Custodians.

Legend will Trade Open-End Mutual Funds, Usually an Institutional Share Class, if available, on Behalf of the Client, Through a Few Non-Related Institutional Custodians.

An Institutional Share Class of an Open-End Mutual Fund is Usually the Lowest Cost Share Class with Regard to the Expenses it Charges.  Therefore, Legend Utilizes No-Load, Institutional Cost, Share Classes of Open-End Mutual Funds.

An Institutional Share Class of an Open-End Mutual Fund is Usually the Lowest Cost Share Class with Regard to the Expenses it Charges.  Therefore, Legend Utilizes No-Load, Institutional Cost, Share Classes of Open-End Mutual Funds Due to its Desire to Reduce its Clients’ Investment Costs.  In Fact, Legend’s Clients Only Pay a Small Transaction Fee for Institutional Mutual Fund Trades to the Custodian (Also Known as a Trading Fee or Commission).

Legend Never Receives any Portion of Such Fees/Commissions.
 
(a) Please Note Certain Custodians that Legend May Use to Accommodate Certain Clients May Charge a Very Small Transaction Fee.



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