An Analysis of Secular Bear Markets and Secular Bull Markets since 1900

From a historical perspective since 1900 there have been 3 Secular Bull Markets and 3 Secular Bear Markets as shown by the tables below of the Dow and S&P 500.  As you can see during a Secular Bull Market the Average Annual Return (highlighted in red) is considerably higher than during a Secular Bear Market (highlighted in blue).  Thus the long term Buy and Hold strategy that worked well in the 1980's and 1990's for investors may have not worked very well during the Secular Bear Markets of 1906-1921, 1929-1949 and 1966-1982.  

Secular Bear Markets vs Secular Bull Markets and Dow Performance

Secular Bear Duration Avg Yearly Ret Secular Bull Duration Avg Yearly Ret
Markets (Years) (Dow) Markets (Years) (Dow)
1906-1921 16 1.58% 1922-1928 7 17.20%
1929-1949 21 1.69% 1950-1965 16 10.60%
1966-1982 17 1.59% 1983-1999 17 15.30%

Secular Bear Markets vs Secular Bull Markets and S&P 500 Performance
Secular Bear Duration Avg Yearly Ret Secular Bull Duration Avg Yearly Ret
Markets (Years) (S&P 500) Markets (Years) (S&P 500)
1906-1921 NA NA 1922-1928 7 17.90%
1929-1949 21 2.34% 1950-1965 16 11.40%
1966-1982 17 3.64% 1983-1999 17 14.96%

The big question is now are we in the beginning stages of  a 4th Secular Bear Market which started in 2000.  The average length of the previous 3 Secular Bear Markets was 18 years with a minimum of 16 years and a maximum of 21 years.  Thus if you add 18 years to the year 2000 and take + or - 3 years on either side then the next Secular Bull Market may not begin until sometime in the 2015 to 2021 time period if we are now entering a 4th Secular Bear Market.  However I would like to point out that even in a Secular Bear Market there can still be Bull Markets lasting a year or two as the longer term charts of the Dow show below.

Notice after the Secular Bull Market of 1922-1928 which was followed by a Secular Bear Market from 1929-1949 that the Dow still had impressive gains during the early to mid 1930s (points A to B) before going through another Bear Cycle prior too and during World War II (points B to C).  This was then followed by another Bull Cycle from 1943-1946 (points C to D).  However from the early part of 1937 (point B) until the end of 1949 (point E) the Dow virtually had a net gain of 0% as its basic overall pattern was a series of up and down movements which pretty much cancelled each other out.   

Meanwhile after the Secular Bull Market from 1950-1965 the Dow once again went through another Secular Bear Market from 1966-1982.  Notice after the Dow peaked in early 1966 (point F) that it had a lot of upward and downward movements from 1966 through 1982 but it basically went nowhere and actually was lower at the end of 1982 (point G) versus its peak in early 1966 (point F).

Looking at the current chart of the Dow shows that it has been exhibiting a choppy pattern similar to previous Secular Bear Market environments after experiencing a Secular Bull Market from 1983-1999.  One has to wonder during the next 10 years or so whether the Dow will continue to exhibit a similar pattern that occurred from the mid 1960's through the 1970's in which it had a lot of downward and upward moves but the overall net gain was negligible. 

Even if we go through another Secular Bear Market over the next several years there will still be plenty of smaller Bull Markets and if taken advantage of properly will still lead to some excellent investment opportunities in the future.

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