The Downturn of 1974 – “Is there no bottom?”

It was after Nixon’s resignation in early August of 1974. The Dow began another terrible decline which slaughtered the remaining Bulls left from the recent sharp rally to 1050. Over the next two months the Dow would drop from 797 to 584 in early October for a loss of 27%. During the plunge, the Dow was hit with a losing streak of 11 straight sessions for a 13% total loss. After hitting bottom, the Dow shot up 16% to 675 in early November, but those gains were quickly lost as the Bulls finally capitulated in despair. 

The Dow fell to a new low of 577 by early December which was to mark its final bottom in the 1966-1982 secular bear market. The Dow’s close of 577 (45% off of its peak) was its lowest level since October of 1962 and sentiment at this bottom was absolutely grim. The same major publications that cheered the Dow at 1000 two years ago were now overwhelmingly pessimistic. Articles such as “Dow below 400?” from Forbes and “Is there no bottom?” from Newsweek were typical of the period. 

As the Dow began to rally off of its second drop below 600, it became apparent that the selling over the past couple of years had finally played itself out. The Dow was trading at 25% below its 200 DMA and the subsequent rally was so strong that it managed to get back to its 200 DMA in just two months with a close of 717 by February of 1975. The recession which began in late 1973 officially ended in March and the Fed was now easing interest rates. By May, the Dow was trading at 855 for an astounding gain of 48% off of its lows from just five months ago.

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