Securities Markets in the 1980s: The New Regime, 1979-1984

By Barrie A. Wigmore | Go to book overview

1
Introduction

The decade of the 1980s was one of the most favorable in the twentieth century for securities markets. The stock market had an average annual total return of 17.5%, as Standard & Poor's Composite Stock Price Index (the S&P 500) rose from 108 to 353. This was the second best decadal return since 1929--only bettered by the 19.3% return of the 1950s when the world was recovering from the Depression and World War II. Long-term government bonds had the best annual returns since 1929 (12.6%) as ten-year treasury rates declined from 10.4% to 7.8%. Real returns were equally impressive. Table 1.1 outlines the average annual decadal returns since 1929 for both of these sectors on a nominal and real basis. If the reader reviews this for a moment it will be clear just how impressive the decade's returns were. No other decade, excluding the 1950s, had stock market returns that were within 50% of the 1980s on a real basis, and the 1930s were the only other decade that came close to the real returns in the bond market. A new market for junk bonds was also born in the 1980s. It combined with oil riches and greatly relaxed antitrust rules to fuel a fivefold increase in merger and acquisition activity from $43.5 billion to $221 billion. Both the stock and bond results and the merger boom were a radical about-face from the 1970s, when common stocks had an average annual return of only 5.9% and government bonds of only 5.5% (both were negative in real terms) and when merger activity was quiescent. 1

The 1970s were plagued by repeated crises over oil prices, inflation, and the dollar. In the last half of the 1970s, the Carter administration's ef-

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Securities Markets in the 1980s: The New Regime, 1979-1984
Table of contents

Table of contents

  • Title Page iii
  • Preface vii
  • Contents ix
  • 1 - Introduction 3
  • 2 - The Change in Regimes 15
  • 3 - The New Regime Revives the Common Stock Market 79
  • Summary 107
  • 4 - The Underperforming Industries 118
  • Summary 174
  • 5 - The Overperforming Industries 178
  • Summary 210
  • 6 - U.S. Treasury Markets 211
  • Summary 240
  • 7 - The Mortgage Securities Market 242
  • Summary 252
  • 8 - The Corporate Bond Market 253
  • Summary 295
  • 9 - The Merger and Acquisition Market 301
  • Summary 361
  • 10 - Conclusions 366
  • Notes 380
  • Index 401
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