Is the U.S. Stock Market "Turning Japanese?"

IS THE U.S. “TURNING JAPANESE?” Over the years, analysts have compared the “lost decade” in the U.S. stock market to the ongoing “lost two decades” in Japan’s stock market and wondered if we are heading down the same path. With a wink to the 1980 New Wave hit from The Vapors, let’s take a look.

Japan

On December 29, 1989, Japan’s Nikkei 225 stock average, the broad measure of the Japan’s stock market, peaked at 38,916. Five years later, it closed at 19,753, representing a loss of 49 percent.  But, it didn’t stop there.

As of last week, after more than 22 years since the 1989 peak, the Nikkei 225 is still down. In fact, it closed at 8,863 – a stunning loss of 77 percent.

Despite this dramatic decline and the tremendous indebtedness of the country, Japan’s economy and society have not imploded. Japan is still the third largest economy in the world, unemployment is low, and the society is civil.

United States

Our stock market, as measured by the S&P 500 index, peaked on October 9, 2007 at 1,565. That peak was followed by a more than 50 percent decline. However, unlike Japan, the U.S. market bounced back strongly and, as of last week, the S&P 500 index closed at 1,461, representing a decline of about 7 percent over the past five years.

Now, some people say we should go back to the March 24, 2000 peak in the S&P 500 index of 1,527 and consider that the starting point for a lost decade. Fair enough. Using that date, the U.S. stock market is down about 4 percent over the past 12½ years, excluding reinvested dividends.

Despite this weak stock market performance and the growing indebtedness of our country, we still have the world’s largest economy, our society is civil (mostly), and, while unemployment is lackluster, it’s not disastrous.

Comparison

Five years removed from the peak in each market, Japan was down 49 percent, while the U.S. market was down just 7 percent.

From the peak of Japan’s stock market through last week – a stretch of more than 22 years – its stock market average is down 77 percent. In the U.S., using our March 24, 2000 peak, we’re down only about 4 percent over the intervening 12½ year period.

So, looking strictly at the numbers, we have not “Turned Japanese.” While reasonable people can argue about our government’s policies and the Federal Reserve’s actions, we can take some comfort in knowing that our economy and stock market, while lackluster, are still persevering.

The rest of the commentary can be found here.

Please be sure to visit the Parks Wealth Management website at www.parkswm.com.

Best regards,

James T. Parks, CFP®, AEP, AIF
President and Wealth Advisor