Courtesy of Doug Short.
Note: Here is an updated snapshot of our totally bad quartet before the market opened on today, October 26th.
This chart series features an overlay of the Four Bad Bears in U.S. history since the market peak in 1929. They are:
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The first chart shows the price, excluding dividends for these four historic declines and their aftermath. We are now at 1019 market days from the 2007 peak in the S&P 500. In nominal terms (not adjusting for inflation) over the same elapsed time, the 1970s bear market is our top performer, 17.4% below its peak. The post-Financial Crisis market is in second at -21.5% with the post-Tech Bubble in third place at -25.6%. The crash of 1929 fared far worse at -71.7%.
However, when we adjust for inflation, the 1970s bear drops well below the two 21st century bear markets. Inflation lowered the value of the 1970s contender by an additional 20 plus percent 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, closing in on break even. Our current secular bear is down 14.0%.
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 -20.9%, and the Great Depression still in last place, but with a statistically less grim -51.3% (those deflated 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 flavor, here’s a chart series that includes the so-called L-shaped “recovery” of the Nikkei 225. I update these weekly.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
Note from dshort: In my 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 adjusted is based on the Consumer Price Index.
