GADFLY: The stockmarket’s partying like it’s 1972
The market tends to repeat itself — so expect a bit of a hangover
New York — The stockmarket is at a record high. Investors are chasing a handful of hot stocks. Geopolitical tensions threaten to upend the rally. I’m referring, of course, to 1972. The S&P 500 Index closed at a record high of 119.12 on December 11. It was the height of the Nifty Fifty (not to be confused with the Nifty 50 Index of India stocks), the idea that investors needed only to buy 50 of the most popular growth stocks and hold them forever. Historians credit the Nifty Fifty craze for driving the market to new heights in the early 1970s, and the numbers bear it out. There was never an official list of 50 stocks, but a frequently cited one was compiled by Morgan Guaranty Trust. The average price-to-earnings (PE) ratio of Morgan’s 50 stocks was 41.9 in 1972, according to University of Pennsylvania professor Jeremy Siegel’s calculation, compared with a PE ratio of 18.9 for the S&P 500. Investors’ confidence in the Nifty Fifty turned out to be ill-timed. The S&P 500 tumbled 17% in ...
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