The Last Days of Optimism

On this day in economic and financial history...

Yale economist Irving Fisher offered one of the most infamously incorrect stock market predictions of all time on Oct. 15, 1929. Speaking at the Purchasing Agents Association's monthly dinner, he claimed that stock prices had reached "what looks like a permanently high plateau."

The Dow Jones Industrial Average (INDEX: ^DJI) closed at 347.24 on the day of Fisher's speech, a decline of 9% from the all-time high reached a month earlier. It would not be long before the market fell apart. From the day of Fisher's prediction to the end of October the Dow would lose 21% of its value. One full year after the "permanently high plateau," the Dow had lost 42% of its value. From peak to trough, over the course of three years, the Dow would be reduced to just 10% of its former heights.

Fisher's statements, as recorded by a New York Times reporter, were detailed and assertive, and wrong in virtually every way:

Mr. Fisher declared realized and prospective increases in earnings, to a very large extent, had justified this rise, adding that "time will tell whether the increase will continue sufficiently to justify the present high level. I expect that it will."

"I believe that the principle of the investment trusts is sound," Mr. Fisher summed up, "and the public is justified in participating in them, with due regard to the character and reputation of those conducting them. ... I do not feel that there will soon, if ever, be a fifty or sixty-point break below present levels."

While the tone of his address proper reflected a moderate optimism, in the informal questioning which followed Professor Fisher fell into almost unqualified optimism. In reply to one question, he declared that he expected "to see the stock market a good deal higher than it is today, within a few months."

Irving Fisher died on April 29, 1947. The Dow, at the time, was still only at half the levels it had reached on the day of his speech. It would not surpass the value of Oct. 15, 1929 for another decade.

Pharmaceutical legacy
Dow component Pfizer (NYS: PFE) celebrates its founding this month, with Oct. 15, 1849 a possible (though unconfirmed) date of birth. Established as Charles Pfizer and Company in Brooklyn, the company was known primarily as a chemical manufacturer until it became one of the earliest modern American pharmaceutical companies when it began making penicillin for the military.

Pfizer celebrated its 160th anniversary by completing one of the largest acquisitions in history. Wyeth became part of Pfizer as the result of a $68 billion buyout on Oct. 15, 2009.

Sinking like a stone
Less than a month after suffering an all-time record point decline, the Dow continued its brutal 2008 fall on Oct. 15 with the second-largest point decline ever recorded. The 733-point drop resulted in a 7.9% loss of the index's value, and this was also the largest percentage decline since 1987's Black Monday. Weak retail sales and Ben Bernanke's comments to the Economic Club of New York contributed to an aggregate $1.1 trillion loss of market value, according to CNN Money's daily recap.

However, some Dow stocks resisted the panic selling thanks to unexpectedly strong earnings reports. JPMorgan (NYS: JPM) posted a profit where analysts had expected a loss, despite the charges resulting from its Washington Mutual acquisition. Intel (NAS: INTC) and Coca-Cola (NYS: KO) both beat earnings while missing revenue expectations. Coke was the only Dow stock to post gains on Oct. 15, 2008. JPMorgan has since lagged the Dow's rebound as the banking system's deep problems have become more apparent, but both Intel and Coke have bested the index's growth since this drop.

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