Secular stock market charts

Other postings represent articles that often incorporate and expound upon the graphics. Please peruse the charts and analyses listed below; we encourage you to send your insights and challenges as catalysts for furthering our research.

You are welcome to use the graphics and quote the text from this website with appropriate attribution and the retention of all copyright designations. Other terms of use are included in the About section. The current expansion, which started in June , is now the third longest in recorded history since the s. If it lasts until May , the current expansion will become the second longest and then in July , it will become number one.

But most of all, if the current expansion endures to January , then it will mark the first decade the s without a recession.

Before , recessions occurred equally 1 to 4 times per decade.

After , recessions occur once per decade about a third of the time and twice per decade about two-thirds of the time. If history is a guide, we should expect 1 to 2 recessions each decade. The current long expansion has come at great cost. No wonder we have a current environment of economic frustration. The concept of secular cycles is sometimes dismissed or misunderstood by investors because they are confronted with a lot of incorrect or contradictory information about these cycles.

First impressions can be a powerful force. Adding to the confusion, there are at least three schools of thought about the causes or drivers of secular bulls and secular bears. The principles and theories within those schools are quite different.

The most common school identifies secular cycles based upon chart patterns or average length of past cycles. The second school identifies secular cycles based upon the force of reversion.

The third school believes that secular stock market cycles are driven by fundamental principles of finance and economics. This article seeks to help you to differentiate the various sources of secular stock market information and understand the basis of their positions.

It will explore in detail the principles from the third school and conclude with a quantitative outlook for the stock market environment and expected future returns.

This will show that secular cycles are mathematically-driven and not phenomena or coincidences. It will also highlight the need to focus on decade-long periods and not century-long average returns. The current economic expansion, so far, is currently the fourth longest on record out of 34 since This chart compares the duration and magnitude of the current expansion to historical averages.

Economists often review the economic cycles after as a separate set. Therefore, the historical averages are presented with all years since and the years since Slow-and-steady has come at a great cost to wage growth and standards of living.

Nonetheless, the economy is in a race to a new longevity record: The age of the current expansion also represents a risk for the stock market should a recession end its run. This new article addresses an increasingly popular question: A number of recognized analysts have succumbed to the intoxicating power of the current cyclical bull market and have mistakenly taken up with hope for a longer run.

They have adjusted their charts and forecasts to reflect a market charging ahead for years to come. But not everyone agrees. This article presents several secular bull charts and forecasts, then explains why we are still in a secular bear market with little chance of above-average returns over the next decade or so.

When will the stock market shift from secular bear to secular bull—or did it already? The implications are significant. Through much of the s and into the s, individual and institutional investors have weathered quite a storm of low returns and high volatility. Are we done being battered? Returns depend upon the starting and ending point. This series of charts presents the compounded annual returns for an investor who began investing during any start year since and ending with any subsequent year.

The versions presented reflect returns for taxpayers and for tax-exempt or deferred investors, as well as returns on a nominal and real after inflation basis. See the assumptions and legends for important details. The long-term view of the stock market reflects extended periods of surge and stall. These periods, known as secular bull markets and secular bear markets, are not optical illusions; rather they are extended periods when market valuations i. The stock market has demonstrated longer-term secular bull and bear cycles.

Secular cycles are extended periods with a common trend. A version of the secular chart overlaid with detailed explanations of its key features is also available: Mixed signals or confirming signals? There are four variables that determine whether the current secular stock market cycle is in bull or bear territory: The inflation rate is the primary driver of secular stock market cycles.

Bond yields, particularly since the s, reflect another financial market perception of the expected future inflation rate. This makes bond yields a confirming measure for secular stock market cycles. The current secular bear began in and has lasted well more than a decade. The surges and falls are relatively consistent in both magnitude and duration with past secular bear market cycles.

The swings during secular bear markets are much more dramatic than most investors realize. Although secular bull markets have similar swings, they are upward-sloping and are often ignored. This presentation is a self-explanatory look at the last secular bear market cycle and a similarly optimistic period during the first half of that cycle. History provides insights when we observe it from the appropriate perspective.

The most recent secular cycle, a bull, ran from through It was preceded by a secular bear starting in and ending in The characteristics of each secular period are reflected in the general direction of the markets and in the frequency of positive returns. As this presentation shows, secular bull periods have generally upward-trending markets and predominately positive green annual returns.

Secular bear periods are erratic and present a significant number of negative red annual returns. The net effect is substantially muted returns due to offsetting positive and negative years.

So where are we today? The current market conditions reflect the same vital signs. There are only three components excluding transaction costs and expenses to the total return from the stock market: To assess the potential returns from stocks for the next decade, this analysis presents the total return and its components for every ten-year period since Published Version includes Markowitz Misunderstood Click Here.

The long-term average return from the stock market is As Baby Boomers continue to retire, they will increasingly rely upon their investments and pensions for income. The youngest Boomers have about a decade to compound their savings into a retirement payload. Even younger Millennials have a vested interest in stock market returns for a secure retirement.

So, from , what length of time is needed to assure that you will receive the historical long-term average return of It will NEVER happen. From today forward, investors from today will not achieve the long-term average return. Not in ten years, twenty years, fifty years, or the nearly ninety years that represent the most recognized long-term average return.

Can anyone predict the future? Probably not, but it is possible to analyze the range of potential outcomes. Even an extended period of 20 years does not ensure positive cumulative returns in the stock market. Investors can spend only compounded returns, not average returns. This chart presents the difference between average returns and compounded returns for investors.

The two issues assessed are the impact of negative numbers and the impact of volatility as measured by the variability within a sequence of returns. Both issues can devastate the actual returns realized by investors compared to the average. The first issue — negative numbers — is demonstrated by this example: The second dynamic — volatility — is illustrated by another example: The starting valuation matters!

From the current above-average valuations, below-average returns are likely to follow for the next decade or longer. Up today and down tomorrow. In this research, we explore the portion of days that the market is up compared to the number of days it is down. Since almost half of the days or weeks are positive and thus half or so are negative , the majority offset each other. Of course, this interpretation completely ignores the fact that certain periods have favorable financial potential secular bull markets and certain periods have unfavorable financial potential secular bear markets.

The same logic that encourages investors to stay in the market seeking gains also subjects them to the adversity of down markets. Shiller shortfall is its strength.

Secular Market

The shortfall relates to the results for from using the stock market index methodology employed by Professor Robert J. Shiller of Yale University author of Irrational Exuberance , and many other sophisticated experts.

Nonetheless, the results using this methodology can vary significantly from actual reported results. Using as an example, the average index reflects a decline for rather than the gains reflected in the year-end values. This section and its presentations will provide a highly provocative and insightful perspective on the relationship of the economy 'the source of wealth' and the equity markets 'the measure of equity wealth'. Whereas other sections present analyses of historical data to provide perspectives, this section is dedicated to exploring the fundamental factors and economic relationships that drive trends and valuations in the financial markets.

This executive summary represents an initial draft explaining, through a series of steps, the relationships among some of the research. Several of the charts within this website are referenced. Since Real GDP has been relatively constant over extended periods of time and all other factors are driven by inflation, a primary driver of the stock market is inflation — as it trends toward or away from price stability.

Financial Physics presents the interconnected relationships between certain factors in the economy and the resulting environment in the financial markets. This analysis dissects the components of Total Return and looks at the potential returns available for the rest of the decade.

If inflation remains below the historical average near 3. That meant that this secular bear had twice as much ground to cover. The last twelve and a half years have deflated the bubble, but the market still remains at levels consistent with secular bear starts. One of the most significant oversights or distortions! There is compelling evidence that the current secular bear market is still early in its course. The last fourteen years have deflated the bubble, but the market still remains at levels consistent with secular bear starts.

It has relied upon a key assumption that inflation is positive. This effect is consistent with the modern dividend discount model since earnings and dividends would be expected to decline during deflation and therefore would result in lower valuations.

The dividend yield of the stock market is relatively low by historical standards. There are two reasons. Many studies present the first reason: Today, the average payout ratio is near the low end of that range. The second reason, explored by this analysis, is that valuation directly affects dividend yields. Stock market history and earnings cycle history are converging. The reality is that the business cycle is different than the economic cycle — GDP growth is much more consistent than EPS growth.

EPS declines can occur during periods of economic growth.

What is a Secular Bear Market (Definition & Chart) and How to Invest

But even if the economy looks solid for the next few years, history highlights that EPS is not immune to decline—especially from such currently high profit margins. Despite the general contention that the economy and the stock market are inexorably connected, the facts get in the way of confirming common wisdom.

This and other research that Crestmont has conducted dispels this conventional notion. As of May , profit margins were cyclically high, near historical highs, and already at unsustainable levels, with projected further increases over the next two years.

Rather than rehash old ground, this article provides a speed-round of charts and limited commentary to explain conditions as of and the expectation for an earnings decline within the next few years.

Once again, since the fundamental principles of the business cycle cause history to repeat itself, a decline in EPS should not be beyond your horizon! Yet, before anyone knew it, the end of the cycle was in the rear-view mirror rather than beyond the distant horizon.

Despite the statistics about average earnings growth, the business cycle drives periods of surge and stall. This analysis explores the earnings growth cycle, the profit margin cycle, and then translates the outlook into specific implications for returns over the next decade.

Recent record profit margins, coupled with the high profit margins before , have fully restored CAPE EPS back to its long-term trend line.

By popular request, this chart of historical stock market volatility will be produced separately and updated regularly. It appears as a key graph in the article Volatility in Perspective. The line on the graph reflects volatility for each trailing twelve-month period starting in January and continuing with each month to present.

There are several insights from the graph. First, volatility is volatile; it cycles erratically over time. Second, periods of extremely high or low volatility often follow the other. Third, volatility tends to spend most of its time around the average i. High or rising volatility often corresponds to declining markets; low or falling volatility is associated with good markets.

The current period of low volatility is a reflection of a good market, not a predictor of good markets in the future. In addition, a second range was determined to include half of the years within the range and half of the years outside the range. This analysis presents an uncanny relationship between stock market performance and the volatility of the market.

We do not assert a causal relationship; rather, the coexistence of the relationship implies that many measures of risk actually compound in declining markets.

By contrast, the reward-to-risk relationship improves significantly in strong markets. Who or what is rocking the boat? The purpose of this presentation is to put volatility into historical perspective graphically. This report will be updated periodically as volatility is just too … volatile to be ignored.

That analysis predicted an increase in market volatility by the end of One year later, as of April , volatility had plunged further, into the lowest five percent of all periods since Judging from the level of complacency in the stock market, some of you may not care to make it to the second paragraph of this article -— Hyman Minsky warned us about times like this!

Those of you who stay until the end will find a compelling case that four indicators portend a significant decline in the stock market and a rise in volatility before the end of next year For those with financial exposure to the stock market today, you may be compelled to act. For those of you that have already hedged your positions, this article will provide the insights as to when to increase your exposure again. Why have sailing strategies over-performed and rowing strategies underperformed in recent years?

Are there reasons to expect anything different in the next few years? How should equities be weighted in portfolios and should alternatives be included? The financial world is operating just as the Fed has intended. The repeating pattern—and unprecedentedly long era—of interest-rate and bond-market interventions now has many investors capitulating to a new world outlook.

Catalysts and conditions are ripening for a reversal of recent patterns. The catalysts were not on the near horizon even a year or two ago. Portfolio diversification and risk hedging are more important now than they have been in quite a while. This article addresses two key questions for investors today: Secular cycles do matter, and the expected secular environment should drive your investment approach.

The investment approach that was successful in the s and s was not successful in the s nor over the past 14 years. Therefore, an insightful perspective about the current secular bear will determine whether you have the right portfolio for investment success over the next decade and longer.

Now, assume for a moment that you must pick one of two investment portfolios. The first is designed to return all of the upside — and all of the downside — of the stock market. The second is structured to provide one-half of the upside and one-half of the downside.

Which would you pick? This graphic highlights a key lesson of investing. There are numerous perspectives about future economic growth. The latest tally includes about 1. Some economists are more optimistic, others more pessimistic, and more than a handful position themselves on both sides of the fence.

This article discusses the long-term implications for slower growth in the stock market. The impact of near-stagnant growth will lie somewhere between bad and worse.

Historically, the prospect of slower economic growth has not often been considered by economists and analysts, but it is now accepted in mainstream thinking. The implications of slower growth on stock market returns will be dramatic for investors. For boatsmen, the history of rowing started more than 8, years ago; sailing is a relative newcomer, arriving on the scene about 3, years later.

Crestmont Research and Ed Easterling brought together the two concepts as chapter 10 of Unexpected Returns , introducing the analogy that contrasts two vastly different investment approaches.

The current secular bear market has driven investors and financial advisors to seek progressive skill-based absolute return investments, rather than to rely upon the more passive and traditional relative return investments. This excerpt from the beginning of the chapter summarizes the contrast.

If the first rule of portfolio management is diversification, why do most investors unwittingly concentrate their risks? Many investors believe that a portfolio constructed with numerous stocks and bonds is diversified. That approach has its roots in the principles of Modern Portfolio Theory MPT.

Yet when MPT is misapplied, it does not provide the roadmap to secure investing and leaves investors vulnerable to substantial risk. This article explores why the strategy of diversification in a portfolio should apply to risks rather than to securities. Most investors have unknowingly folded a significant concentration of risk into their investment portfolios.

He began the paper by parsing the portfolio selection process: The first stage starts with observation and experience and ends with beliefs about the future performances of available securities. The second stage starts with the relevant beliefs about future performances and ends with the choice of the portfolio. This paper is concerned with the second stage.

There has never been a thirty-year period for the stock market during which investors have lost money; yet there have quite a few thirty-year periods that have bankrupted senior citizens who were relying upon their stock portfolios for retirement income. Although history provides an average outcome across a wide variety of market conditions, it is relevant to consider only those periods with characteristics similar to those we see today.

Why are so many of the most knowledgeable institutions and individuals shifting away from investment portfolios that have been concentrated in stocks and bonds toward a more diversified and risk-managed profile?

The tools and resources are now available to permit investors at all levels to use this enhanced approach and be successful. This article describes the dynamics and benefits of seeking more consistent, absolute returns rather than investing simply for the relative returns of the stock market.

Public employee retirement systems across the nation have a major problem. Almost all of these pension plans currently assume investment returns that are well beyond levels that are reasonably achievable going into the future. The result is that they appear better funded than they really are. Ultimately, the inevitable and substantial shortfalls that result will become the responsibility of taxpayers.

The current shortfalls are not, as conventional wisdom asserts, the one-time result of a stock market decline in The shortfalls are the result of the gap between faulty assumptions and actual returns, a gap which will ensure an ever-widening shortfall.

Most policy makers assume that their recent provisions to address the shortfall will cure the problem over upcoming decades. Instead, the hole is many times larger than they believe. There are significant implications for investors, taxpayers, plan beneficiaries, and other constituents.

A wrongly-diagnosed problem leads to ineffective solutions and worsened conditions. The simple analysis -— graphed.

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A simple analysis—a powerful statement. What percent of the gains during positive months is needed to achieve stock market returns if an investor avoids losses during declines? Let the profits and over-allocation in equities compound to your benefit. Based upon recent secular market history, the risk cost of more frequent rebalancing in secular bull markets is far less than the opportunity derived from more frequent rebalancing in secular bear markets.

Rebalancing is the active management technique that capitalizes on market cycles. The entire content of Crestmont's website, including but not limited to charts, graphs, analyses, etc. All material available on this site may be used or referenced if the user references and acknowledges Crestmont Research and our website address i.

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