Yesterday, we published the chart below, by Doug Short. It compares the major rally off the bottom in the current market (blue) with that of 1929 (grey), 1974 (red), and 2002 (green).
We noted the obvious: Our current rally has just exceeded the rally in the winter and spring of 1930–the one that convinced most people in that era that it was off to the races again.
But it’s worth drawing attention to the other two lines in the chart, too. Note that, after the initial 50% rally, there wasn’t much additional upside for the S&P 500 in the 1970s, and there was no additional upside for the recovery in the early 2000s.
Doug’s chart only extends two years after the bottom, but this pattern lasted longer than is shown here. After the 1974 low, the S&P didn’t move consistently higher than 50% above the low for another 10 years, until the early 1980s. And as we know all too well, the S&P is still within 50% of the low it set after the tech crash.
The message here is the usual one: After big bubbles, recovery takes time. Hopefully, our own recovery clock really started in 2000, so that we’re 9 years in instead of 2 years in. But either way, history suggests we have may have several sideways years to go.
For good measure, here’s a chart by James Montier at SocGen (via John Mauldin). It combines many bubbles to form an aggregate bubble index. Those little numbers at the bottom are months. (Housing bulls take note.)
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