# U.S.

U.S. Stocks in 1983: The Last Pullback Before the Bull Market ## A Sharp Correction Just After the Bull Market Began Starting in mid-1983, the market began to decline. The Dow Jones Industrial Average pulled back by more than 20%, while the Nasdaq fell by more than 30%. Why did such a sharp correction occur just as the great bull market was getting started?

The U.S. economy was highly complex at the time. The economic rebound in 1983 was exceptionally strong, with gross national product growing 6.8%. Along with the tax cuts, privatization, and deregulation associated with Reaganomics, investment across the private sector began to accelerate. Inflation also started to pick up again.

The Federal Reserve was still unwilling to fully ease policy and began raising rates preemptively. The 10-year Treasury yield rose rapidly from 10.2% to 14%. The market still had vivid memories of the stagflation of the 1970s. Risk appetite, which had only just begun to recover, declined rapidly, leading to falling valuations.

## The Nasdaq Experienced a Larger Pullback Because Its Valuations Were Higher At the time, the Nasdaq National Market had expanded to 682 listed stocks. Throughout the 1980s, the number of IPOs was three times that of the New York Stock Exchange.

The Nasdaq had already begun to develop emerging technology sectors, including semiconductors, computer hardware, consumer electronics, biotechnology, and advanced materials. Its companies included such well-known names as Intel, AMD, Apple, and Amgen.

However, their price-to-earnings ratios generally ranged from 20 to 40 times, well above the 10-to-15-times valuation range typical of Dow blue-chip stocks. As interest rates rose and the market de-rated, the Nasdaq therefore declined more sharply than the Dow. The Dow was also undergoing a transformation in 1983.

It had 30 component stocks and was still dominated by traditional industries such as heavy industry, energy, and finance, including Exxon, General Electric, General Motors, and U.S. Steel. Consumer, service, and technology companies still accounted for a relatively small share.

IBM, however, had already returned to the Dow, while Coca-Cola would rejoin in 1987. Overall, the Dow throughout the 1980s still represented the transformation of the U.S. economy toward technology, consumption, and finance.

## The First Oil-Price Discount Another event occurred in 1983 that I personally consider highly significant: 25 years after its founding, OPEC agreed for the first time to cut the official price of oil, reducing it from $34 per barrel to $29—a one-time decline of roughly 15%.

After the second oil crisis, oil prices had climbed as high as $40 per barrel, prompting Western consumer countries to aggressively promote alternative energy and energy-saving technologies. Stagflation itself also weakened consumer demand, contributing to sluggish consumption. The supply side was even more interesting.

High oil prices encouraged non-OPEC producers—including the United Kingdom, Norway, and Mexico—to steadily increase output, beginning to take market share from OPEC. By 1983, OPEC production had fallen to only about one-third of the oil supplied to Western markets, and competition had become intense.

Before OPEC cut prices, non-OPEC producers had already taken the first step by lowering theirs. OPEC members also faced their own individual difficulties and were unable to reach a tight production-cut agreement to maintain prices.

OPEC had once used its control over oil-producing regions to force Western countries to accept higher oil prices, even at the cost of greater domestic inflation. That “hold” lasted only 25 years. After 25 years, OPEC’s monopoly had been broken.

This marked the beginning of oil markets’ transition from a sellers’ market to a buyers’ market, and toward greater maturity. ## Lessons From a Century of U.S. Stock-Market History 1️⃣ Early high-growth technology stocks on the Nasdaq also carried high valuations.

When Apple went public in 1980, its valuation reportedly reached more than 100 times earnings at one point. By 1985, its P/E ratio had gradually fallen to 16 times. Even though earnings had risen more than threefold over those five years, the stock price still fell by half. This was not fundamentally different from China’s STAR Market 40 years later.

Who could have known? Forty years later, Apple’s share price had risen 3,000-fold. So, the most important thing is still having the right vision. 2️⃣ Even at the beginning of a bull market, emerging from a bear market is only the start of a series of tests.

Even when a 17-year bull market lies ahead, the market may still have to make a deep pullback at the beginning—falling 20% to 30%. Today, after finally climbing out of the bear market of the past few years, both the Shanghai Composite Index and the Hang Seng Index have risen for only a year or so, yet both seem to be showing signs of another breakdown.

Is the bull market still worth looking forward to? The most important thing is still having the right vision. 3️⃣ Oil derives its value from its practical uses, while gold derives its greater value from its lack of practical use. Anything that is “useful” is ultimately constrained by the real-world supply and demand for the underlying goods.

Because of the situation in the Strait of Hormuz, oil appears poised to surge once again. But history reminds us that oil crises can return—and that they eventually end.