Don’t Talk About Record Stock Prices to Owners of These Shares

Aug 27, 2014 11:19 am ET

(For more Market Line insights, see NI MKTLINE.)

Aug. 27 (Bloomberg) -- Here’s a fun quirk about math that you probably already know but is worth repeating: If the price of something drops 50 percent, it will need to rise 100 percent just to get back to where it started.

How about, say, a 93.9 percent plunge like the one experienced by the NYSE Arca Airline Index? That would require an almost 1,600 percent rally to get back to the top, according to math.

As the Standard & Poor’s 500 Index marks another record and round-number milestone, the time is right to reflect on what parts of the market have lots of ground to make up to reclaim highs. It’s arguably a good way to gauge how much room stocks still have left to rally or maybe how much potential they have to fall next time, depending on if you’re a glass half-full or half-empty type. (Remember: if your glass is half full it will require 100 percent more liquid to get back to the top.)

That airline index is probably the best place to start. It peaked at 209.6 in July 1998, so at 16 years old its record is one of the oldest around. It bottomed out along with the rest of the market on March 9, 2009, at 12.7 and has surged 583 percent since. It’s still 59 percent below its peak, meaning it has to rally another 142 percent to get back to where it was in July 1998.

Banks and technology companies, of course, make this list too.

Tech, Banks

The S&P 500 Information Technology Index, like the Nasdaq Composite and Nasdaq 100, hasn’t set a record since March 2000. It needs to climb another 49 percent to get there. The Nasdaq Composite is much closer, needing only about a 10 percent gain. The Nasdaq 100 Index has to rise about 16 percent.

The KBW Bank Index plunged 85 percent from its record on Feb. 20, 2007, to its low on March 6, 2009. The peak was eight months before the rest of the market and its trough was three days before the rest of the market, so insert your own joke about bankers’ hours here. After a 286 percent rally from its low, the index is still 41 percent below its peak and needs a 68 percent advance to get back. It’s a similar story for the 84- member S&P 500 Financials Index, which needs a 62 percent gain.

We might as well mention homebuilders, which peaked more than two years before the market top in 2007. The S&P Supercomposite Homebuilding Index is still down 55 percent from its record, so it needs a 124 percent rally to get back.

Anyway, it’s almost Labor Day, after which we enter the longest stretch of the year without a market holiday, according to data compiled by Bloomberg. Here’s hoping your glasses are at least half full this weekend.