NEW YORK — If cycles of the stock market are best compared to four-footed beasts, then the market of 1984 was surely a mule.
The market planted its hooves last January and wouldn't budge more than a few steps backward or forward for 11 months, despite the goadings of strong economic growth in the first half and falling interest rates in the second.
Its stubborn ways pushed individual investors to the sidelines and drove many institutional money managers to the bond market or to stocks that were considered hopeless plodders during the bull market of 1982 and 1983. The market punished the big brokerage houses and high-technology firms, filled the coffers of the money market funds and made fools of those who predicted that the landslide reelection of a conservative President would trigger a market stampede.
It forced many companies to go deeper into debt, rather than sell shares, to raise capital.
Only in the year's waning days did the market show some spark--rising nearly 35 points on Dec. 18 to 1211.57--as it became clear that the Federal Reserve Board was intent on stimulating the economy with a further drop in interest rates. But even that bit of excitement proved brief as the Dow Jones industrial index followed up with a listless performance, ending the year at the same 1211.57 level.
The professional Wall Street watchers dubbed it "the year of frustration" and "the year of comeuppance" that followed the giddy moneymaking of 1982 and early 1983. The market's up-and-down ride may be the worst of all possible worlds, since a consistent down market can be played for a profit, some complained.
Its recalcitrance in the face of economic growth, low inflation and falling interest rates "surprised a lot of people," said Monte Gordon, market analyst for Dreyfus Management in New York. "You have to conclude that the market was troubled by the prospect of a federal deficit and a trade deficit that was going to steal economic growth."
Adding to its jitters recently has been the Treasury Department's "flat tax" proposal, which has threatened to deprive businesses of tax breaks that have grown dear to their hearts.
The Dow Jones average of 30 industrial stocks reached its yearly high Jan. 6, at 1,286. The closely watched average then traced a desultory path that was interrupted briefly by an August rally that lifted the index 87 points between Aug. 1 and Aug. 3.
Its closing level represented a decrease for the year of 3.7%, compared to an increase of 20% recorded in 1983; 1984 was thus the first year since 1960 that the return to power of the incumbent political party did not touch off a major rally.
The crab walk of the Dow index, which best mirrors the movements of stocks of large industrial companies, conceals the depth of the decline of stocks of many smaller companies.
The average return of stocks on the New York Stock Exchange, including price appreciation and dividends, came to 0.5% in 1984--the lowest increase in 10 years, said Norman G. Fosback of the Institute for Econometric Research, a private investment advisory firm in Fort Lauderdale, Fla. He said the figure may provide the most accurate portrait of how the average individual investor fared in 1984, since the exchange's listings encompass companies of varying sizes.
"Since the average dividend was up about 3.5%, you can see that the average price was actually down a little bit," he said.
Stayed on Sidelines
It is clear that many individual investors who were frightened from the market in the latter half of 1983 kept their money on the sidelines through 1984. Trades of 900 shares or less--those presumed to be made mostly by individual investors--accounted for about 11% of the total on the New York Stock Exchange in October, notes Perrin Long, market watcher with Lipper Analytical Services in New York.
At the same time in 1983, the figure was 13.4%, and in 1982 such small-lot trades accounted for almost 17% of total volume, he points out.
Brave investors who stayed in the market last year may have done worse than average if they bet on the high-technology stocks whose prices during the 1982-83 market had soared to 200 times their earnings per share.
An index of technology stocks formulated by the California Technology Stock Letter, a San Francisco advisory firm, declined 25% for the year, while a technology-stock index of the investment house of Hambrecht & Quist Inc. fell about 30%.
"Investors feel they've been once burned and are now wary," said Long. "You won't see their values up there for some time."
Among the year's high-tech casualties are the shares of computer maker Convergent Technologies Inc., which is down to $6 from a high of $40.75, and of disk drive manufacturer Seagate Technology Inc., which has fallen to $5 from a high of $22.