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Four Totally Bad Bear Recoveries: Where Are We Now?

  • Written by Syndicated Publisher No Comments Comments
    April 21, 2015

    At the request of The Advisory Group in San Francisco, here’s updated comparison of four major cyclical bear markets. The numbers are through the April 17 close.

    This chart series features an overlay of the Four Bad Bears in U.S. history since the market peak in 1929. They are:

    1. The Crash of 1929, which eventually ushered in the Great Depression,
    2. The Oil Embargo of 1973, which was followed by a vicious bout of stagflation,
    3. The 2000 Tech Bubble bust and,
    4. The Financial Crisis following the record high in October 2007.

    The series includes four versions of the overlay: nominal, real (inflation-adjusted), total-return with dividends reinvested and real total-return.

    The first chart shows the price, excluding dividends for these four historic declines and their aftermath. As of Friday’s close are now 1893 market days from the 2007 peak in the S&P 500.

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    Inflation-Adjusted Performance

    When we adjust for inflation, the gap between our current recovery and the other three widens, thanks to exceptionally low inflation in recent years.

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    Nominal Total Returns

    Now let’s look at a total return comparison with dividends reinvested. The recovery following the 2007 Oil Embargo Bear is the top performer, up 70.1% from the 2007 peak, with the current post-Financial Crisis recovery in second place at 56.2%.

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    Real (Inflation-Adjusted) Total Returns

    When we adjust total returns for inflation, the picture significantly changes. The spread between three of the four markets narrows, and the current real total return has pulled far ahead of the others. Second place, by this metric, goes to the recovery following Crash of 1929.

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    Click for a larger image

    Here is a table showing the relative performance of these four cycles at the equivalent point in time.

    For a better sense of how these cycles figure into a larger historical context, here’s a long-term view of secular bull and bear markets, adjusted for inflation, in the S&P Composite since 1871.

    These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.

    Footnote: When I first began featuring this comparison about six years ago, I used the Dow for the first event and the S&P 500 for the other three. However, I’m now including a pair of total return versions of the chart, which requires dividend data. Thus I’m now using the S&P 90, for which I have dividend data. The S&P 90 was a daily index launched by Standard & Poor’s in 1926 and preceded the S&P 500, which dates from March 1957.

    Inflation adjustment is based on the Consumer Price Index.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.


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