Take a look at the 100 year chart provided below . I have coloured each “Market” appropriately —
Green for Bull, and
Red for Bear — to show more clearly what happens.
Bull markets get ahead of themselves. At their ends, they tend towards excesses that take a very long while to recover from.
When a long Bull runs end, it takes quite a while before the next one begins. Some of this is related to the destruction of capital crashes cause; Much of it has to do with the psychological damage suffered by investors. As we have seen more recently, that damage — plus 46 year low interest rates — helped push former market investors into real estate. We have yet to see their unbridled love affair with sotcks rekindled. What will be the catalyst to get them back into equities? My best guess is a sustained move upwards.
Regardless of the actual cause, in the past century, every Bull Market has been followed by a significant refractory period. From the looks of the time-lengths of red, it appears almost generational in nature. The damage is repaired when a new crop of investors — without crash scars — finally appears.
Is it possible that an 18 year Bull market (1982-2000) could be followed by a 2 1/2 year Bear (March 2000 peak to October 2002 low), and then launch into another multi-decade (2003-2018) Bull? Sure, anything is possible. But as the chart above plainly shows, it would be historically unprecedented.
One other thing worth noting: The steepness of the gains from 1924-1929 are very much parallel to the 1996-2000 moonshot. Both ended with near 80% drops (Dow for 1929, Nasdaq for 2000).
It took 25 years — until 1954 — for the Dow to regain its 1929 highs. I don’t believe it will necessarily take that long for Nasdaq — but I am aware of the outside possibility.
Thanks a lot for the useful info