One of the earliest articles in my tenure with MFO was entitled “Ten Market Cycles.” It characterized the risk and return metrics of the S&P500 during full market cycles (comprising bear and bull markets) beginning in the mid-1950s. This piece evolved through the years using month-ending instead of day-ending prices, making it a little easier to see the big picture, and adding new cycles. The series, if you will, is summarized here:
- Ten Market Cycles [March 2014]
- Mediocrity and Frustration [November 2014]
- A Presumptive Bear Ends an 11-Year Bull Run [April 2020]
- A Thirty Year Proposition [September 2020]
- Super Bull Markets [November 2021]
When this series began, we were about fives years into the bull market that emerged from the Great Financial Crisis [GFC]. It began in March of 2009. Most of us were still smarting from the 50% market drawdown of the GFC, as well as reminded of a similar drawdown caused by the Tech Bubble just a decade earlier. These two drawdowns book-ended the 2000’s and gave rise to the decade’s pejorative adjective: “lost.”
The metrics only dated back to the mid-1950s. I rationalized it represented more modern market history. Also, Lipper’s database only dates back to 1960. The U.S. Securities and Exchange Commission [SEC] was established in 1934, the aftermath of the Wall Street Crash of 1929, and is intended to help prevent market manipulation. Similarly, the Investment Company Act of 1940 enables federal regulation of investment trusts and counselors to help protect investors.
There have been subsequent measures: the Sarbanes-Oxley [SOX] Act to improve the accuracy and reliability of corporate disclosures, helping protect investors against fraud, like the Enron scandal. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which imposed a sweeping overhaul of the United States financial regulatory system in response to the 2008 GFC.
Despite these well-intended “safe-guards,” there is no guarantee the S&P500 will not one day fall greater than 50%, even to levels not seen since the Great Depression. Here are two related pieces that touch on such occurrences:
The last piece reminds readers that the NASDAQ drew down a bit more than 80% in 2002, about the same as the S&P500 did in 1932. For a brief but terrifying time in March 2020, it certainly felt like the potential drawdown knew no bounds. In some asset classes, like real-estate and transportation, it was true. At that time, I promised to incorporate the early cycle data into MultiSearch.
Many of the tools and analytics on the MFO Premium site were motivated to examine, based on historical returns only, just how bad things can get. These moments are lost frankly in the geometric returns of the S&P500 this past century … and impressive 10.5% per year, fortunately for investors in the US market. And while our database prior to 1960 includes only indices for the S&P500, Long US Government Bond, and 3-Month T-Bill, the tools reveal max drawdown, best and worst rolling averages, deviations, and correlations, which are key to setting expectations going forward.
“Early” here refers to the three US equity market cycles occurring before those published in previous studies. They are nicknamed: E1) Great Depression [192909 To 194605], E2) Post WWII [194606 To 196112], and E3) JFK-LBJ [196201 To 196811].
Below are the Early Cycle Returns for the Preset Mixed Allocation SP500/LGovBnd indices. These are in units of annualized percent return unless the period is less than 1 year; in which case, as with Post WWII and JFK-LBJ bear markets, the table shows absolute percent return.
MultiSearch now includes dozens of Display (evaluation) periods, which are described in the Definitions page. They are also described in the expanded MutliSearch page (click on circled + sign) or by hovering over column headers.
To help make the identification easier, we expanded the headers with more descriptive titles. We’ve also organized the return period columns as follows: Calendar Year, Monthly, Yearly, Decadal, Market Cycles, Unique Period, Calendar Decade, Early Market Cycles. You can select any or all via the Groups button on the MultiSeach Results table.
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