by Wolf Richter, Wolf Street:
Food for thought in light of the biggest stock market bubble in the US ever.
Major European stock indices plunged below their bubble highs from over two decades ago. This is not to say that they plunged that much this week, but that they had finally risen past their prior bubble highs from over two decades ago, powered by money printing, and then they plunged.
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German stocks. The most widely cited German stock market index, the DAX, is a total return index that includes dividends and is therefore not comparable to a price index such as the S&P 500 Index, which does not include dividends. But the less-often cited DAX Kursindex (DAXK) is a price index, and does not include dividends, and is comparable to the S&P 500 Index and most other major stock indices. So that’s what we’ll use here.
The DAXK plunged by 4.4% on Friday, and by 10.1% for the week, to 5,517. Since the all-time closing record of 6,873 on January 5, 2021, it plunged 19.7%. But wait… that all-time closing high was up only 10% from the bubble high in March 2000 – yup, that bubble that imploded 22 years ago. And on Friday, the index closed 11% below the bubble high of March 2020. Note the gigantic volatility investors went through over these 22 years to end up below where they’d started.
UK stocks. The UK FTSE 100 price index dropped 3.5% on Friday and 6.7% for the week, to 6,987. The index is now down 10% from its all-time high in May 2018. But wait… The Friday close is down just a tad from the close on December 31, 1999, which had been the bubble high 22 years ago, and now the index is back at it:
French stocks. The CAC 40 price index plunged 5.0% on Friday and 10.2% for the week, to 6,062, and is down 18% from its all-time high on January 2021. But wait… yup, the index has now dropped 12% below its bubble high back in September 2000. And note the horrendous volatility that investors had to endure to go nowhere:
Spanish stocks. The Spanish IBEX 35 Index dropped 3.6% on Friday and 9.0% for the week, to 7,721, and yup, for buy-and-holders, this stock market has been a total 25-year nightmare. On Friday, stocks dropped to the lower portion of the 25-year range, to a level seen already in 1998. The index is now down 52% from its peak in December 2007:
Italian stocks. Italy’s FTSE MIB Index plunged 6.2% on Friday and 12.8% for the week. This horror show is now down 55% from the peak in March 2000, and back where it had been sometime in the 1990s – as my data goes back to only December 1997, and even back then, the index was still higher than today. Another great market for buy-and-holders to get wiped out:
There are a bunch of other stock indices globally, including big ones such as the Japanese Nikkei 225 and the Chinese Shanghai Stock Exchange, that today are below their bubble levels of many, many years ago.
This shows that for many big stock markets around the world, buy-and-hold only works if you buy low and hold till prices are high and then sell before they plunge again. So basic market timing. Otherwise you might be screwed for decades, or maybe for the rest of your life – the Nikkei is still down 33% from that bubble high in 1989. Once these mega-bubbles implode, stock markets may not see their old highs for decades. Food for thought.