by Gary Alexander
May 24, 2022
The stock market will be closed next Monday, Memorial Day. It has been closed every Memorial Day since 1971. Oddly enough, the very last Memorial Day on which stocks traded was the year before that –Monday, May 25, 1970, when stocks were careening down in a tech-stock crash similar to what we’re seeing now. The absolute bottom came the next day, at Dow 631.16, down 35% since the previous May.
The S&P 500 was also down 35%, but NASDAQ was not yet born. (It debuted on January 1, 1971). If the NASDAQ had existed, it would have been off by 50% or more, since 1970 was a tech-based disaster, just like the latest crash, which has seen NASDAQ lose over 31% while the S&P 500 was down just short of 20% at its ebb tide, and the Dow was off just 17% at its nadir, making 2022 a tech-focused slaughter.
Even though there was no NASDAQ in 1969 and 1970, many tech stocks fell by 80% or more from mid-1969 to mid-1970, with the core losses coming in the five weeks from April 21 to May 26, 1970. For instance, Ross Perot’s EDS stock fell a total of 85%, from a peak of $162 to $24, while Control Data fell 83%. Another darling sector back then was the “conglomerates,” like LTV, which also tanked big time.
The overall market did not fall nearly that far. The S&P 500 fell 9% in April 1970, -6% in May, and -5% in June, for a cumulative 19% drop in the second quarter, while the Dow lost just 13% in the quarter.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So thorough was the stock massacre that, according to John Brooks in “The Go-Go Years: The Drama and Crashing Finale of Wall Street’s Bullish 60s,” “A portfolio consisting of one share of every stock listed on the Big Board was worth just about half of what it would have been worth at the start of 1969.”
There was also troubling national news that Spring, beginning with the dramatic story of Apollo 13’s near-fatal moon mission (April 11-17), followed by President Nixon’s incursion into Cambodia (April 29), resulting in campus riots and the shootings at Kent State (May 4). In the week of May 4-8, over 80 college campuses were completely shut down, and a violent conflict between students and “hard hats” took place on Wall Street on May 8, all in the middle of a recession caused by Nixon fighting inflation.
Did I mention that the Beatles were breaking up in May 1970 – as chronicled in the film, “Let it Be”? That film was edited to show the Fab Four at each other’s throats, but Peter Jackson’s 2021 re-edit of the original footage (“The Beatles: Get Back”) shows the Boys in great spirits, just ready for a new chapter in their lives. As Ringo Starr said, “There was hours and hours of us just laughing and playing music, not at all like the Let It Be film that came out [in 1970]. There was a lot of joy and I think Peter will show that.”
But bad news always sells better. Nobody writes about the sunrise the morning after the Beatles broke up when the #1 hit for the week of May 30, 1970, was Ray Stevens’ “Everything is Beautiful (in its own way)” or the gentle sounds of The Carpenters’ “Close to You,” which was #1 for four straight weeks.
In market news, from the May 26, 1970 low, the Dow gained 50.6% in the next 11 months and the S&P 500 gained 51.2%, while NASDAQ, in its first two full years in diapers (1971-72), gained 49.3%.
Here’s another Memorial Day turnaround to ponder, from 60 years ago: On Memorial Day, May 28, 1962, the Dow fell 35 points (-5.7%) in the midst of the U.S. Steel crisis, after President John F. Kennedy rolled back U.S. Steel’s price increases. On April 13, 1962, America’s biggest steel firms rescinded their announced April 10 increase in steel prices, after the steel-jawed President accused barons of industry of “public irresponsibility in the pursuit of private power and profit.” (Sound familiar, fossil fuel CEOs?)
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
You would think the 1962 crash would be during the Cuban Missile Crisis, but no, it was all about steel prices. In the first half of 1962, the Dow fell by 27%, mostly based on this ongoing war of words between big steel and big government. From the eventual June 26, 1962 low of 535.76, the Dow shot up 85.7% to 995.15 on February 9, 1966. That brings me to the amazing track record of the mid-term election cycle…
Both 1962 and 1970 were mid-term election years, following a tried-and-true pattern of: Dip-and-soar!
Mid-Term Election Years are Usually Weak – Except for the Final Quarter
On April 26, 2022, I wrote about weak mid-term election-year markets – except for a booming fourth quarter, which tends to soar on the “revolutionary” reversal of Congressional checks and balances. From that point forward, the “sweet spot” of the four-year Presidential Cycle is the three-quarter honeymoon of the new “Gridlock” balance of power from the election-year’s fourth quarter through June 30 next year.
The last mid-term election (2018) came during a time when Fed Chairman Jerome Powell raised rates one time too many, so the market tanked in December, but otherwise the previous six mid-term elections have delivered a 15% jump in the S&P 500 from October through the following June, a fairly reliable trend.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Let’s look at the last four mid-term elections ending in “2” (including this year) as examples of this trend:
- On April 28, 1942, the Dow bottomed out at 92.92, just 4-1/2 months after Pearl Harbor and 10 days after Jimmy Doolittle’s seemingly impossible bombing raid over Tokyo. The Dow gained 128.7% in the next four years as America rallied and won World War II on two fronts.
- On June 26, 1962, as shown in this article, the Dow bottomed at 535.76, just 2-1/2 months after President Kennedy attacked the steel industry (and U.S. business in general). The Dow then gained 85.7% in the next 3-1/2 years, partly due to a huge tax cut – crafted by JFK, LBJ, and the Democrats!
- On August 12, 1982, the Dow bottomed out at 776.92 after a deep double-dip recession and nearly a decade of “stagflation” after the 1973 OPEC oil embargo. By late 1982, President Reagan’s early tax cuts took effect and the Dow gained 250.4% in the next five years.
- On October 9, 2002, 13 months after 9/11 and after another double-dip recession following a tech-stock bubble, the Dow bottomed at 7,286.27 and then doubled to 14,164.53 in five years.
- So far in 2022, the Dow and S&P 500 have peaked in the first week of 2022. As I write, their lows were set on May 12. They may bottom soon, but the historical patterns point to lower lows ahead.
This time around, we’ve seen some parallels in the onset of stagflation (as in the 1970s), a hot war involving Russia, a Democratic President’s war of words against a specific business sector (Biden vs. fossil fuels) but each decade’s situation is different. There are no perfect parallels, but the most solid historical precedent tells us that a reversal of the power structure in Congress this fall may launch a rally.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Global Growth is Grinding to a Halt
Income Mail by Bryan Perry
Mixed Messages Will Keep Market Volatility Elevated
Growth Mail by Gary Alexander
Will This Be Another Memorial Day Market to Remember?
Global Mail by Ivan Martchev
Possible Peak In 10-year Treasury Yields
Sector Spotlight by Jason Bodner
What Happened to Risk Assets in 2022?
View Full Archive
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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