Note: With Monday’s big rally, I couldn’t resist the urge to update this chart pack with today’s 3.41% gain.
This chart series features an overlay of the Four Bad Bears in U.S. history since the market peak in 1929. They are:
- The Crash of 1929, which eventually ushered in the Great Depression,
- The Oil Embargo of 1973, which was followed by a vicious bout of stagflation,
- The 2000 Tech Bubble bust and,
- The Financial Crisis following the nominal all-time high in 2007.
The first chart shows the price, excluding dividends for these four historic declines and their aftermath. We are now a bit beyond 1000 market days from the 2007 peak in the S&P 500. In nominal terms (not adjusting for inflation), the current market matches the Tech Crash at the equivalent point, down 23.7% from the 2007 peak, down 25.9% from the 2000 peak. The 1970s bear market was only 14.8% below is peak. The crash of 1929 fared far worse, down 68.1%.
However, when we adjust for inflation, the 1970s bear drops well below the two 21st century bear markets. Inflation lowered the value of the index by an additional 22% in just over 1000 days.
Now let’s look at a total return comparison with dividends reinvested. The Financial Crisis bear slightly outperforms the Tech Bust (-16.5% to -21.3%). But the 1970s total return was 0.4% above the 1973 peak.
But when we adjust total returns for inflation, the picture changes rather dramatically. The inflation of the 1970s drops the total return to a level comparable with today (-25.7% then versus -3.4% now). The Tech Bust comes in at -28.4% and the equivalent point in the Great Depression, a deflationary period, was -45.3%.
Here is a table showing the relative performance of these four cycles at the equivalent point in time (1009 market days).
For a better sense of how these cycles figure into a larger historical context, here’s a long-term view ofsecular bull and bear markets, adjusted for inflation, in the S&P Composite since 1871.
For a bit of international flavour, here’s a chart series that includes the so-called L-shaped “recovery” of the Nikkei 225. I update these weekly.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
Note from dshort: In my previous commentaries on these bad bears, 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 version 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 adjusted is based on the Consumer Price Index.