Note: At the request of Greg Patterson of The Advisory Group in San Francisco, I periodically refresh this snapshot of our totally bad bear quartet. This update is current through the market close on June 1.
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 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. We are now at 1171 market days from the 2007 peak in the S&P 500. In nominal terms (not adjusting for inflation) over the same elapsed time, the 1973 Oil Embargo bear is our top performer, 11.9% below its peak. The current secular bear is in second at -18.3% with the post-Tech Bubble in third place at -22.9%. The crash of 1929 fared far worse at -70.6%.
However, when we adjust for inflation, the 1970s bear drops below the two 21st century bear markets. Inflation lowered the value of the 1970s contender by about 26.5% over the illustrated time frame.
Now let’s look at a total return comparison with dividends reinvested. Interestingly enough, the post-Oil Embargo market is by far the top performer, up 7.3%. Our current post-Financial Crisis market is at -9.8%.
But when we adjust total returns for inflation, the picture changes dramatically. The spread between the four markets narrows, with the current market in the lead, down 18.6%, and the Great Depression still in last place, but with a statistically less grim -48.8% (those deflated dollars of the 1930s bought more).
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.
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 every week or two.
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: In 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 adjustment is based on the Consumer Price Index.
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