By Doug Short
Note: In response to a standing request, here is updated comparison of four major secular bear markets. The numbers are through the Friday, October 21 close.
This chart series features an overlay of the Four Bad Bears in U.S. history since the equity 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 record high in October 2007.
The series includes four versions of the overlay: nominal, real (inflation-adjusted), total return with dividends reinvested and real total return. The starting point is the aligned peaks prior to the four epic declines.
The first chart shows the price, excluding dividends, for these four historic declines and their aftermath. As of Friday's close, we are now 2,276 market days from the 2007 peak in the S&P 500.
When we adjust for inflation, the gap between our current recovery and the other three widens, thanks to exceptionally low inflation in recent years.
Nominal Total Returns
Now, let's look at a total return comparison with dividends reinvested. The 1973 Oil Embargo Bear recovery is the top performer, up 83.6%. The current recovery is in second place, up 66.1%.
Real Total Returns
When we adjust total returns for inflation, the picture significantly changes. The spread between three of the four markets narrows dramatically, and the current real total return has pulled far ahead of the others. Second place, by this metric, is a virtual dead heat between the post-Oil Embargo rally and the Crash of '29.
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.
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: When we first began featuring this comparison about six years ago, we used the Dow for the first event and the S&P 500 for the other three. However, we're now including a pair of total return versions of the chart, which requires dividend data. Thus, we're now using the S&P 90, for which we 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.