Talk:Stock market downturn of 2002

This article was nominated for deletion on 11 May 2007. The result of the discussion was Keep.

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Sun was up; escalators continued their slow steady decline.

From a recent Washington Times editorial:

Given that the annual rate of economic growth had collapsed from more than 6 percent during the second half of 1999 to less than 1 percent during the second half of 2000, only a person blinded by partisanship could fail to acknowledge the fact that the recession actually began before Mr. Bush entered office. Similarly, for the stock market collapse, notwithstanding Mr. Daschle's tirade equating Mr. Bush with Herbert Hoover, the Dow Jones industrial average peaked in January 2000, and the Nasdaq bubble burst two months later. It is also worth noting that fictitious profit figures reported by the Clinton-Gore Commerce Department were in no small measure responsible for the stock-market bubble in the first place.

Would anyone who understands economics like to comment on the above? Is any of it suitable for inclusion in a Wikipedia article? --Ed Poor

I know a little about this.

It's true. The stock markets were already going on a tumble during the second half of 2000, because stock markets were severely overvalued when the Dow and NASDAQ reached their peaks.

Valuation pretty much determines how investors can make a stock market perform. This is where the stock market mantra "buy low, sell high" comes from. If you buy when stocks are cheap, and sell when stocks are expensive, you could get a big return

The Dow had a PE ratio of 44x. A breeding ground for a speculative stock market bubble. The Dow hit its peak of 11,722.98 on January 14, 2000. The Nasdaq on the other hand, had a P/E of 103x (a P/E over 30x is breeding ground for a 1929-type crash!). I believe the reason why the Nasdaq had such a grossly high valuation was because 1999 was such a stellar year for the Nasdaq. The index gained 86% that year. Most of the 86% came during the 4th quarter of the year. The Nasdaq gained from 4000 to 5000 in less than three months. It peaked at 5048.62 on March 10, 2000. It then drifted lower for the rest of March, then the Nasdaq crashed (Yes, it crashed!) in April of 2000. The crash knocked off nearly 2,000 points in a month.

But the odd thing was that the Nasdaq was still severely overvalued in early 2002, two years after the dot-com bubble burst and led to the Nasdaq crash.

Stock market indices can still be overvalued during its bust period, the last period of the boom-bubble-burst-bust cycle. The bust period can last for decades.

But I believe that the recession really began during the summer of 2001, a few months before the September 11 attacks. Dismal earnings reports and a staggering drop in job numbers sent stock markets on a correction in a desperate effort to bring markets back to fair value. Had 9/11 not occurred, I believe that the 1,370-point loss that the Dow sustained the week after the event occurred would have been extended over a period of two or three months instead of being compressed to a week.

The market did eventually return to what would be considered fair value according to the annual average 7 1/2% return: about 7,000 for the Dow, 1,100 for the Nasdaq, and 800 for the S&P 500. It traded at these levels during the 3rd quarter and early 4th quarter of 2002.

BigT27 03:02, 19 Jan 2005 (UTC)

Shouldn't this be merged with stock market crashes article?

I see a pressing need but little motive preventing this from being included in the stock market crash article, despite its importance and value. I'm not sure what politics has to do with it but it certainly had economic and market remaificiafions. I'm going to try to merge it once I find out how. — Preceding unsigned comment added by Raiders88 (talk • contribs) 20:25, 2 November 2018 (UTC)[reply]