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Large Caps Outperform While Small Caps Stumble

After the market crash of last year, the government rescue effort was concentrated in large cap companies. They let the small companies fall by the wayside. This is very clear from what happened to the banks. The large banks, even those which almost went belly up, got a large infusion of capital while the small banks were left to swim by its own. Before the crash, the conventional wisdom in the street was that the smaller companies have a greater possibility of leaping up their profits. But, now the conventional wisdom is that the smaller companies are more likely to fail under the present situation.

How Low Can This Market Go? The 40 Percent Solution

Go to Yahoo Finance and download monthly close of DJI from Jan 1930 to Jun 2008. Plot them on a semi-log chart in Excel. Get a straight trend line. You will find out that by the historical trend, DJI should be around 9,675 today. It closed today at 11,100.
You may also notice that DJI stayed just about 1,000 for about 16 years between 1966 and 1982. You will also see a big run up of DJI in the 20 some years before 1966. Now, look at the big run up of DJI between 1982 and 1999. It is up to you to guess what is going to happen in the next decade or so. DJI hovering around 10,000? You may or may not believe in the law of average. But, no one can tell.