The S&P 500 just passed the 2,000-point psychological threshold, an absolute record for that index, created in 1950 and comprising the 500 largest companies traded on the U. S. stock market, thus being more representative than the famous Dow Jones Industrial Index, with its 30 companies. This new record would seem to show that the U. S. recovery is under way… but let’s step back a little in order to evaluate these numbers.
As can be seen on this 1950-end of 2013 graph (reaching 1,600 points), the S&P 500 has been quite erratic since the 2000s, with two bubbles that burst! But let’s get back to the ’80s… Back then was the triumph of Ronald Reagan’s ‘conservative revolution’, which led to a vast liberalisation of the economy with whole sectors being allowed to compete (air transportation and telecoms, notably), while at the same time income tax was reduced, thus encouraging wealth creation. Sound growth takes place and the United States comes out of the ’70s crisis on the way to two wealth producing decades.
In all logic, the S&P 500 starts to rise in 1982, with the 1987 October crash being just a glitch quickly forgotten. But, starting in 1995, the trend picks up, with the start of the ‘internet bubble’. Much hope is placed in the nascent network and heads are spinning a little too much. The bubble burst, beginning of 2000, and the S&P 500 went from a peak of 1,527 to a trough of 800 in 2002, almost down by half.
This post was published at Gold Broker on Aug 28, 2014.