The current bull market feels _______.
(a) Long in the tooth.
(b) overdone.
(c) as if it is on its last legacy.
(D. ALL OF THE ABOVE.
It’s going to be hard to argue with either of these choices when you look at the numbers. From the bottom in early March 2009, the S&P 500 is now up more than 800% on a total return basis:
Now it’s about 19% per annum to last for 13 years.
Stock There is no way to make this clip last forever. Eventually returns will be low and a bear market will occur. I’m sure of it.
But even if returns from here are slow and we experience a handful of bear markets in the coming years, history shows that bull markets can last a lot longer than you might think.
Before we dig deeper into some market history, I have a few caveats. Defining a “bull market” is not easy.
Do they start from the bottom of the last bear market?
Do they start once the previous highs have been taken out?
When a bear market occurs do they reset?
I have my own definition that you will see in the following figures. You may deviate from my definition but it is really semantic. Also, I’ve done some cherry-picking of the start and end dates here. Data is data but I did this to make a point.
Investing in the stock market was dead money from 1929 to 1941. The total return during this 13 year period was -35%. That is, a loss of about 3.3 percent annually.
The average stock market investor’s experience was certainly worse than those numbers.
From the peak of September 1929 to the bottom in the fall of 1932, US stocks fell 86%. This was followed by a rally of over 110 per cent in just 3 months. Those gains were nearly 40% wiped out by the bear market that ran in early 1933. Stocks rose another 120% in 1933 to experience two and 30% bear markets between the tail-end of 1933 and 1935.
And just when people thought the genocide was over with the Great Depression, the recession of 1937 hit and the stock fell 55%. The market ended in 9 out of 13 years from 1929–1941. There is no doubt that this was the worst US stock market environment in history.
It wasn’t until WWII that stocks finally found their footing. From 1942-1949, the market grew by 290%. This is enough for a return of 18.6% per annum. The 1950s actually continued the post-war boom, which may still be the best decade in the history of the US market.
Stocks were up nearly 500%, or 19.5% year over year.
Things cooled down a bit in the 1960s, but stocks still more than doubled in that decade, posting double-digit gains in 6 out of 10 years.
It doesn’t have as much cash as the boom times of the 1980s and 1990s, but this period can be just as influential in its longevity.
From 1942-1968, the S&P 500 increased by about 39000%. This is close to a 15% annualized return over 27 years. Ten thousand dollars invested in the S&P 500 in 1942 would be worth about $400k by 1968.
The worst calendar year return during this period was -10.5%.
Of course, there were downturns and corrections during this run. There were just no bone crushers.
In fact, there were 5 recessions, all relatively light savings for the 1945 version coming out of the war. 16 double-digit improvements over this 27-year period:
Average losses were -16.2%. This bull market was booked by a 35% crash from 1940–1942 and a 36% crash from 1968–1970, but there was no 30% drop in between. That’s almost three decades with no systemwide market reset.
Then from 1969-1978, the stock market was up just 38% overall. This is a marginal profit of just over 3% per year. And when you consider that inflation was running at 6.5% per annum during this 10-year time frame, the real return was negative.
This period also included a brutal recession and bear market in 1973–1974, in which the stock was cut in half.
After that dreadful, no-good decade in stocks, investors were rewarded with sky-high interest rates, low valuations, and two recessions in the three-year period from 1980-1982. But the stock market had already started seeing those high rates and inflation.
From 1979-1983, US stocks were up 120%. Despite the biggest one-day crash in history in October 1987, there was not a single down year from 1982–1989.
The 1980s saw stocks rise 395% or 17.4% annually.
After a relatively bad recession in 1990, shares again rose by more than 425% (18% per annum) in the ’90s.
There were only two down years for the S&P 500 from 1979-1999 — losses of 4.7% and 3.1%. Again, lots of reforms along the way but none destroying the economy or the financial system:
The average decline during these 21 years was -17.5 per cent.
The next painful leg came down as the tech bubble burst. The stock market will lose more than twice its value in less than a decade. From the bottom of the Great Financial Crisis crash in late 1999 to early March 2009, the S&P 500 was down a total of 46%.
It is close to 10 years where the market not only went nowhere, but also got crushed.
You know what happened next because the stock is now up 12 out of 13 years since the 2008 crash.1
Here is a summary of this history lesson:
By my estimation, we have had six long-term market cycles over the past 100 years. Of course, there were mini booms and busts within these longer cycles. There will always be cyclical bear markets during secular bull markets and vice versa.2
Here are some excerpts from this exercise:
- Both the good times and the bad times can last longer than you think.
- Neither the good times nor the bad times last forever.
- The current bull market may end tomorrow but it may go on for more than another decade.
- Investing in stocks can be painful. Investing in stocks can also be good. Sometimes it just depends on timing and luck.
It is also worth noting that even 100 years is a very small sample size when it comes to markets. There is no need to look at the future like the past. And because we now know so much more about the history of the market, this is probably more true than ever.
Studying the history of the market does not help you predict what is going to happen in the future.
But it can set you up for a wide range of consequences – both upside and downside.
Further reading:
2021 was one of the best years in stock market history
1As a reminder, this bull market hasn’t always been easy.
2 This is actually the first secular bull market that started from the bottom of the market. Stocks fell from market lows in 1932 and 1974, which is why I used March 2009 as a start and end point. Is this cherry-picking? Yes Yes it is. This will happen.
