Stock Market Similarities between 1974 and 2009

History Repeats Itself…  So You’ll Want To Be In The Market For The Next Six Months

By Rick Pendergraft

I don’t remember much about 1974, I turned 7-years old that year.  I remember that my dad lost his job with Firestone that year and that my family almost moved to Georgia in order for my dad to stay with the company. We ended up not moving from New Castle, but ’74 and ’75 were tough years for my family.

So why is 1974 so important 34 years later?  The last time the employment picture was this bad was in 1974.

The November employment report showed 533,000 jobs vanished from the U.S. economy for the month. This, along with a revision to October’s numbers, brings the total number of jobs lost this year to 1.8 million.  This is the worst employment report since December 1974 and the fourth worst since 1939.

In December ’74, the economy showed job losses of 602,000.  That December is historical for another reason too.  It marked the end of the bear market that gripped the U.S. for two years.  But what happened next is the astounding part.

From December ’74 through June ’75, the Dow rose an incredible 42 percent.  Could this be a replay?  Is this a case where things look the bleakest right before a turnaround?

The market is certainly due for a bounce and the oversold levels are where they were in ’74, so the similarities go farther than just the employment numbers.  In fact, it gets downright eerie.  The low in 1974 came on Friday, December 6.  I don’t know whether or not the employment reports always came out on the first Friday of the following month or not, but it certainly is spooky how things are setting up almost identically.

If the next six months play out just like things did in ’74-’75, where would it take the market?  The Dow would jump from the 8300 level to approximately 11,800.  From December 6, 1974 to May 9, 1975, there were only four down weeks out of 22.  The market soared very quickly.

The similarities continue.  From the peak in January ’73 to the low in December ’74, the Dow lost 46.58 percent.  From the October ’07 peak to the November low, the Dow dropped 47.53 percent.

So looking beyond June, what can we expect for 2009?  Everyone seems to think the market will remain troubled for the first half of the year and then things will get better in the second half of the year.  I actually think the first half of the year may be better than the second half.  Should the market soar higher over the next six months, sentiment will likely get overly optimistic and then we will see a choppy second half.  I look for the Dow to move back above 10,000 by the end of the summer and then move sideways through the end of the year.

I look for oil to stabilize down here in the $40-$45 range, and then it will start climbing as the economic picture starts improving.  I look for interest rates to continue their downward path over the first half of the year and then they will start rising again towards the end of the year.

I think the best place to be for the first half of 2009 is in stocks.  As we reach the summer months, you will need to step back and reevaluate whether it still makes sense or not.

Good luck and good trading,

Rick