Stock to FOMO: The Beginning of the end
With confetti flying and champagne corks popping, Wall Street yesterday closed out its most lucrative year ever. For traders and dealers, 1980 was also a year that required quick reactions, steady nerves and strong stomachs. Extreme volatility and high volume were the hallmarks of the financial markets and, judged in those terms, it was a year unlike any other.
''This was probably the most profitable year in the history of Wall Street,'' John J. Phelan, president of the New York Stock Exchange, said of 1980.
Surveying the cavernous trading room at Bear, Stearns & Company, Alan C. Greenberg, a partner and member of the firm's executive committee, expressed what seemed to be the consensus throughout much of the financial district. ''It was a great year, just terrific,'' Mr. Greenberg said.
For stocks, 1980 was the year in which both institutional and, increasingly, individual investors finally decided that equities were an inflation hedge. In the credit markets, thanks to constant shifts in economic policy that brought huge swings in interest rates, bonds became things to trade like stocks, rather than the buy-and-hold investments that they were traditionally.
Moreover, the very volatility that put everyone on edge was, ironically, the source of much of the financial community's prosperity. For in volatile and uncertain markets, skittish investors tend to trade their securities more frequently, generating more business for the brokers, dealers, traders and salesmen of Wall Street.
In the stock market, the year brought a seemingly endless stream of superlatives. Of the 25 most active days in New York Stock Exchange history, for example, all but three of them occurred this year. The record-setting session came in wake of Ronald Reagan's election, on Nov. 5, when 84.3 million shares valued at almost $3.3 billion changed hands.
Yesterday, the stock market, as measured by the Dow Jones industrial average , advanced 1.96, to 963.99. The average daily volume in 1980 was 44.87 million shares, up from just under 32 million shares a day in 1979, which was then a record. The total shares traded on the Big Board reached a record 11.35 billion, a hefty increase over the 8.15 billion traded last year. On the American Stock Exchange, too, the daily volume set a record, 6.42 million shares a day, for a total of 1.63 billion, a 47.8 percent increase over the 1.1 billion traded in 1979.
Our Coverage of the Investment World
The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
The stock market certainly had its ups and downs in 1980, touching a low of 759.13 on April 21 and reaching a high of 1000.17 on Nov. 20 as measured by the Dow Jones industrial average .
Yet the Dow's closing of 963.99 yesterday represented a robust gain of almost 15 percent for the year. The broader measures of stock market performance, containing more smaller companies, rose even more, with high-technology and energy issues leading the way. For example, the Standard & Poor's 500 advanced more than 25 percent, to 135.76 from 107.94.
''After years of thinking that inflation is bad for the stock market, people this year began buying stocks as a hedge against inflation ,'' Donald B. Marron, president of Paine Webber Inc. and director of the Big Board, said in a telephone interview from a vacation spot in Nassau.
Other areas of the securities business thrived as well. Led by Genentech and Apple Computer, the market for new public issues had its most active year since 1972.
Though the totals are not in yet, 1980 may well have been the biggest year ever for publicly underwritten stock sales, both by companies just going public and other companies issuing additional shares. Also, new public offerings in the credit markets set records.
The commercial paper market, merger and acquisition activity, private placements and other sides of the securities and investment banking business were generally strong.
This year, the once-staid bond market became a gambler's arena. ''What marked this year was the wild volatility ,'' said James M. Davin, a managing director of the First Boston Corporation. ''A longterm holding was one you held onto for 20 minutes. Everybody was in a speculative market, and everybody knew it.''
To illustrate that volatility , Mr. Davin, punching buttons on his nearby computer console to retrieve the pertinent inforation, cited the following example: One of the most widely held bonds, 30-year Treasuries yielding 9 1/8 percent and maturing in 2009, swung in price from a high of 96.688 on June 17 to a low of 71.188 on Dec. 11, an uncommonly wide 36 percent difference in a single year.
Moreover, average daily volatility on that issue was between 3/4 and 1 point. Historically, the expected volatility would be in the 1/8 to 1/4 point range.
''There was just never a period when this market really stabilized,'' William J. Voute, a Salomon Brothers partner, observed. Indeed, some investors and firms, caught on the wrong side of interest rate swings, took heavy losses. Because of the increased volatility , the Securities and Exchange Commission has recommended increasing the amount of net capital the commission requires to back up a firm's fixed-income holdings, or position. Bond Volume Accelerates
In this uncertain and fast-changing milieu, bond trading volume accelerated. For instance, the daily average transaction volume in Government securities alone, measured in dollar value, was $18.1 billion, according to the Salomon Brothers research department. By contrast, the daily average in 1979 was slightly less than $13.2 billion.
Despite the spring and winter interest-rate peaks that kept issuers on the sidelines, the bond underwriting business also reached record levels.
''There were windows - periods of lower rates - in the market,'' James Balog, senior executive vice president of Drexel Burnham Lambert, said. ''When they opened, people were quick and nimble enough to jump in.''
The total of corporate bonds publicly offered was $40.9 billion, Salomon Brothers estimates. The previous record was $37.5 billion in 1975.
In 1980, Salomon Brothers calculates that the Treasury's total public borrowings were $92.2 billion, exceeding the previous record of $80.4 billion in 1975. Municipal offerings also peaked at $47.3 billion, against the earlier benchmark of $46.2 billion in 1978. Effect of High Profits Uncertain
Just what effect this year's high profitability will have on the securities industry is uncertain. Some industry executives say that salaries, not counting bonus payments, increased as much as 30 percent at several firms during the year. Once again, research departments are being built up, with technology analysts most in demand.
Mr. Phelan of the Big Board asserted that the greater public ownership of securities houses, compared with some of the profitable years in the late 1960's when most of the firms were partnerships, would make a difference.
''The whole nature of profitability has changed,'' Mr. Phelan said. ''I think the profits will be distributed differently this time, more of it will be plowed back into the firm to shore up capital reserves and help develop new products. The industry needs this kind of year to strengthen itself.''
''This was probably the most profitable year in the history of Wall Street,'' John J. Phelan, president of the New York Stock Exchange, said of 1980.
Surveying the cavernous trading room at Bear, Stearns & Company, Alan C. Greenberg, a partner and member of the firm's executive committee, expressed what seemed to be the consensus throughout much of the financial district. ''It was a great year, just terrific,'' Mr. Greenberg said.
For stocks, 1980 was the year in which both institutional and, increasingly, individual investors finally decided that equities were an inflation hedge. In the credit markets, thanks to constant shifts in economic policy that brought huge swings in interest rates, bonds became things to trade like stocks, rather than the buy-and-hold investments that they were traditionally.
Moreover, the very volatility that put everyone on edge was, ironically, the source of much of the financial community's prosperity. For in volatile and uncertain markets, skittish investors tend to trade their securities more frequently, generating more business for the brokers, dealers, traders and salesmen of Wall Street.
In the stock market, the year brought a seemingly endless stream of superlatives. Of the 25 most active days in New York Stock Exchange history, for example, all but three of them occurred this year. The record-setting session came in wake of Ronald Reagan's election, on Nov. 5, when 84.3 million shares valued at almost $3.3 billion changed hands.
Yesterday, the stock market, as measured by the Dow Jones industrial average , advanced 1.96, to 963.99. The average daily volume in 1980 was 44.87 million shares, up from just under 32 million shares a day in 1979, which was then a record. The total shares traded on the Big Board reached a record 11.35 billion, a hefty increase over the 8.15 billion traded last year. On the American Stock Exchange, too, the daily volume set a record, 6.42 million shares a day, for a total of 1.63 billion, a 47.8 percent increase over the 1.1 billion traded in 1979.
Our Coverage of the Investment World
The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
The stock market certainly had its ups and downs in 1980, touching a low of 759.13 on April 21 and reaching a high of 1000.17 on Nov. 20 as measured by the Dow Jones industrial average .
Yet the Dow's closing of 963.99 yesterday represented a robust gain of almost 15 percent for the year. The broader measures of stock market performance, containing more smaller companies, rose even more, with high-technology and energy issues leading the way. For example, the Standard & Poor's 500 advanced more than 25 percent, to 135.76 from 107.94.
''After years of thinking that inflation is bad for the stock market, people this year began buying stocks as a hedge against inflation ,'' Donald B. Marron, president of Paine Webber Inc. and director of the Big Board, said in a telephone interview from a vacation spot in Nassau.
Other areas of the securities business thrived as well. Led by Genentech and Apple Computer, the market for new public issues had its most active year since 1972.
Though the totals are not in yet, 1980 may well have been the biggest year ever for publicly underwritten stock sales, both by companies just going public and other companies issuing additional shares. Also, new public offerings in the credit markets set records.
The commercial paper market, merger and acquisition activity, private placements and other sides of the securities and investment banking business were generally strong.
This year, the once-staid bond market became a gambler's arena. ''What marked this year was the wild volatility ,'' said James M. Davin, a managing director of the First Boston Corporation. ''A longterm holding was one you held onto for 20 minutes. Everybody was in a speculative market, and everybody knew it.''
To illustrate that volatility , Mr. Davin, punching buttons on his nearby computer console to retrieve the pertinent inforation, cited the following example: One of the most widely held bonds, 30-year Treasuries yielding 9 1/8 percent and maturing in 2009, swung in price from a high of 96.688 on June 17 to a low of 71.188 on Dec. 11, an uncommonly wide 36 percent difference in a single year.
Moreover, average daily volatility on that issue was between 3/4 and 1 point. Historically, the expected volatility would be in the 1/8 to 1/4 point range.
''There was just never a period when this market really stabilized,'' William J. Voute, a Salomon Brothers partner, observed. Indeed, some investors and firms, caught on the wrong side of interest rate swings, took heavy losses. Because of the increased volatility , the Securities and Exchange Commission has recommended increasing the amount of net capital the commission requires to back up a firm's fixed-income holdings, or position. Bond Volume Accelerates
In this uncertain and fast-changing milieu, bond trading volume accelerated. For instance, the daily average transaction volume in Government securities alone, measured in dollar value, was $18.1 billion, according to the Salomon Brothers research department. By contrast, the daily average in 1979 was slightly less than $13.2 billion.
Despite the spring and winter interest-rate peaks that kept issuers on the sidelines, the bond underwriting business also reached record levels.
''There were windows - periods of lower rates - in the market,'' James Balog, senior executive vice president of Drexel Burnham Lambert, said. ''When they opened, people were quick and nimble enough to jump in.''
The total of corporate bonds publicly offered was $40.9 billion, Salomon Brothers estimates. The previous record was $37.5 billion in 1975.
In 1980, Salomon Brothers calculates that the Treasury's total public borrowings were $92.2 billion, exceeding the previous record of $80.4 billion in 1975. Municipal offerings also peaked at $47.3 billion, against the earlier benchmark of $46.2 billion in 1978. Effect of High Profits Uncertain
Just what effect this year's high profitability will have on the securities industry is uncertain. Some industry executives say that salaries, not counting bonus payments, increased as much as 30 percent at several firms during the year. Once again, research departments are being built up, with technology analysts most in demand.
Mr. Phelan of the Big Board asserted that the greater public ownership of securities houses, compared with some of the profitable years in the late 1960's when most of the firms were partnerships, would make a difference.
''The whole nature of profitability has changed,'' Mr. Phelan said. ''I think the profits will be distributed differently this time, more of it will be plowed back into the firm to shore up capital reserves and help develop new products. The industry needs this kind of year to strengthen itself.''
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