The Now-Forgotten Tech Stock Crash on “Earth Day” 1970

Gary Alexander writes on the now-forgotten tech crash of 44 years ago.

I would hazard a guess that not one in 10 of my readers remembers the stock market crash on Earth Day, 1970. If you Google “Tech stock crash 1970,” you will see precious few entries that directly address that specific crash. The first two Google entries I saw came from our own article on the subject in April 2010, on the 40th anniversary of that crash – “(Back to) Earth Day” – reprinted by Investorplace and NASDAQ.

In writing that 2010 article, I found precious few resources to consult. Due to a lack of online sources, I used a faded old Dun’s Review article from 1971 and a 1973 book, The Go-Go Years: The Drama and Crashing Finale of Wall Street’s Bullish 60s, by New Yorker financial writer John Brooks. The 1997 reprint of that book includes a forward by best-selling author Michael Lewis. Here’s how the book starts:

“On April 22, 1970, Henry Ross Perot of Dallas, Texas, one of the half-dozen richest men in the United States…suffered a paper stock-market loss of about $450 million.” This amounted to “more than the annual welfare budget of any city except New York; and more – not just in figures, but in actual purchasing power – than J. Pierpont Morgan was known to be worth at the time of his death in 1913.”

Furthermore, the collapse of Perot’s EDS stock “was not based on any bad news about the company’s operations. To the contrary, the news was all spectacularly good; per-share earnings for 1969 were more than double those for 1968, and even for the first quarter of 1970 – a time of fast-deepening general business recession – EDS showed a 70% profits increase over the same period for 1969.” The EDS crash, the book shows, was a “bear raid” based upon the narrow float of available shares of EDS at the time.

Perot’s big loss came on the first Earth Day, so I characterized the 1970 stock market collapse as “back to earth” day for tech stocks, which had been the darlings of the late 1960s. Perot was not alone. Many tech stocks fell by 80% or more from 1969 to mid-1970, with the core losses coming in five weeks, April 21 to May 26, 1970. Perot’s EDS fell a total of 85%, from a peak of $162 to $24, while Control Data fell 83%.

In the aftermath of that crash, financial consultant Max Shapiro constructed a list of 30 leading “glamour stocks” and their fate. He picked 10 leading conglomerates (like LTV), 10 computer stocks (led by IBM), and 10 hot technology stocks (Polaroid, Xerox, etc.). In Dun’s Review in January 1971, he showed that the 10 conglomerates fell by an average 86%, the computer stocks fell 80%, and the tech stocks fell 77%.

The overall market did not collapse at anywhere near those levels. The S&P 500 fell 9% in April 1970, another 6% in May, and 5% in June, for a cumulative 19% drop in the second quarter of 1970. The Dow lost just 13% in the second quarter and 35% from peak to trough. But second-tier stocks fared worse. According to Go-Go Years author John Brooks, “a portfolio consisting of one share of every stock listed on the Big Board was worth just about half of what it would have been worth at the start of 1969.”

At the time, the tech stock crash of 1970 was overshadowed by troubling national news. Not only did the Earth Day celebration of April 22 take Ross Perot off the front pages the next day, but there was also the dramatic news of Apollo 13’s near-fatal moon mission (April 11-17), followed by President Nixon’s incursion into Cambodia (April 29), resulting in campus riots and shootings at Kent State (May 4) and Jackson State (May 14), amidst a recession engineered by Nixon as a way to fight inflation by “cooling the economy.” In the week of May 4-8, over 80 college campuses were completely closed down, and a violent conflict between students and “hard hats” took place in the shadow of Wall Street on May 8, 1970.

Posted by on April 22nd, 2014 at 12:26 pm


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