A Close Look At Long-Term Bull And Bear Markets Since 1871

Was the March 2009 low the end of a secular bear market and the beginning of a secular bull? Without crystal ball, we simply don’t know.

One thing we can do is examine the past to broaden our understanding of the range of possibilities. An obvious feature of this inflation-adjusted is the pattern of long-term alternations between up-and down-trends. Market historians call these “secular” bull and bear markets from the Latin word saeculum “long period of time” (in contrast to aeternus “eternal” — the type of bull market we fantasize about).


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If we study the data underlying the chart, we can extract a number of interesting facts about these secular patterns:



The annualized rate of growth from 1871 through the end of December (using extrapolated CPI data for the most recent month) is 2.07%. If that seems incredibly low, remember that the chart shows “real” price growth, excluding inflation and dividends. If we factor in the dividend yield, we get an annualized return of 6.67%. Yes, dividends make a difference. Unfortunately that has been less true during the past three decades than in earlier times. When we let Excel draw a regression through the data, the slope is an even lower annualized rate of 1.73% (see the regression section below for further explanation).

If we added in the value lost from inflation, the “nominal” annualized return comes to 8.88% — the number commonly reported in the popular press. But for a more accurate view of the purchasing power of the market dollars, we’ll stick to “real” numbers.

Since that first trough in 1877 to the March 2009 low:

  • Secular bull gains totaled 2075% for an average of 415%.
  • Secular bear losses totaled -329% for an average of -65%.
  • Secular bull years total 80 versus 52 for the bears, a 60:40 ratio.

This last bullet probably comes as a surprise to many people. The finance industry and media have conditioned us to view every dip as a buying opportunity. If we realise that bear markets have accounted for about 40% of the highlighted time frame, we can better understand the two massive selloffs of the 21st century.

Based on the real (inflation-adjusted) S&P Composite monthly averages of daily closes, the S&P is 69% above the 2009 low, which is still 30% below the 2000 high.

Add a Regression Trend Line

Let’s review the same chart, this time with a regression trend line through the data.


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This line is a “best fit” that essentially divides the monthly values so that the total distance of the data points above the line equals the total distance below. The slope of this line, an annualized rate of 1.73%, approximates that number. Remember that 2.07% annualized rate of growth since 1871? The difference is the current above-trend market value.

The chart below creates a channel for the S&P Composite. The two dotted lines have the same slope as the regression, as calculated in Excel, with the top of the channel based on the peak of the Tech Bubble and the low is based on the 1932 trough.


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Historically, regression to trend often means overshooting to the other side. The latest monthly average of daily closes is 48% above trend after having fallen only 10% below trend in March of 2009. Previous bottoms were considerably further below trend.

Will the March 2009 bottom be different? Only time will tell.

Note: For a more optimistic view of long-term market trends and what’s ahead, see Georg Vrba’s article Estimating Stock Market Returns to 2020 and Beyond. Georg uses real total return (i.e., inflation adjusted, but with dividends reinvested). In contrast, my analysis is based on the index real price without dividend reinvestment. My preference for the price-only data is based in large part on the rather dramatic change over time in the index’s dividend yield.

Over the long haul, dividend yields have been quite erratic, but the overall trend over the past several decades has been one of shrinking dividend yields. Note also that sharp drops in price in the first half of the 20th century saw, predictably enough, the yields jump. In contrast, the crash of the recent financial crisis saw a spike in yields at 3.60%. Compare this to the 6.24% spike at the 1982 trough and 13.84% at the 1932 trough.


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Note: For readers unfamiliar with the S&P Composite Index (a splice of historical data different from the S&P Composite 1500), see this article for an explanation.

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