About the "Did You Know?" Series
In coming weeks, I will be writing some articles under the umbrella of, "Did You Know?" Most will be relatively short pieces about various financial-market matters I believe readers will find of interest and potential benefit. These will be clearly referenced as part of the overall series and posted at the GRA website, www.gillespieresearch.com/. More than likely, the next installment of "Did You Know?" will examine corporate debt and interest rates, and the impact interest rates are likely to have on corporate profits going forward. -- Doug Gillespie
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Summary
Did you know that from its 1973 high to its 1974 low, the Dow Jones Industrial Average fell 45%? It is what came afterwards that could be helpful in assessing the stock market's current prospects.
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NOTE: If you are a visitor to the GRA website, please be sure to read the "Special Announcement" found at the end of this article (after the article's "Conclusion" section).
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Does the 1965-1982 Secular Bear Market Have
Anything to Teach Us About the Current One?
First: Yes, I remain staunchly in the secular bear camp! I have a few key reasons for maintaining this view, with the following being one of the less scientific. There simply never has been nearly the degree of capitulation by the so-called "public" that one would expect during an episode as protracted and periodically painful as the one we have experienced.
When I originally placed myself in the secular bear camp a good while ago, it was a lonely place. Then, as the stock market worsened and more people became converts to the concept, it got much less lonely. However, over the last year or so, market sentiment has swung strongly in the opposite direction. The secular bear camp has once again become a relatively lonely place to be.
There's an irony here in that I turned very bullish between the summer and fall of 2002. In March of 2003, a time when general sentiment was exceptionally negative, I strongly reaffirmed my bullish stance, pointing out that occasional cyclical bull episodes were tantamount to obligatory to make secular bear markets possible. It appeared to me that the ingredients were rapidly falling into place for a solid cyclical bull. I made my case at the time in a lengthy research missive entitled, "Do Stocks Have Life After War?"
A cyclical bull market was indeed the outcome. But now -- actually, commencing months ago -- many analysts have decided that instead of experiencing a cyclical bull inside a secular bear, we are now involved in a new secular bull market.
Maybe, maybe not -- but I personally believe the secular bear is still with us, will be with us for a considerable time yet, and it is about to reassert itself, if it has not already done so. In this regard, let's go back to a point in yesteryear to see if it might not provide some guidance.
The Last Secular Bear (1965-1982)
There is always at least a modicum of controversy in dating such major market events. In passing, therefore, I'll quickly explain why I use 1965-1982 -- specifically, 12/31/65 through 8/12/82. It is mostly a matter of "big-picture" configuration, as well as a little convenience.
The Dow finished 1965 at about 969, the closest it had come up to that time to closing at or above what would become the highly elusive 1,000 mark. (The industrials finally made it in November of 1972, 1,003.16 on 11/14.) A long time later -- 8/12/82 -- the DJIA closed at about 777, 19.8% below where it had stood at the end of 1965.
In between, the industrials closed as high as about 1,052 and as low as roughly 578. Thus, someone buying the Dow at the end of 1965 and holding it through 8/12/82 had roughly a 20% principal loss, offset by dividends, of course. Although there was no net forward progress over this approximately 16.6 year period, there was a great amount of volatility, as is shown in the following table.
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THE DJIA'S PERFORMANCE DURING THE SECULAR
BEAR MARKET OF 12/31/65 THROUGH 08/12/82
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---------- Closing ---------- Year
Year High/Date Low/Date Change Index
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1965 969.26 12/31[1] 840.59 06/28 12/31/65=100.00
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1966 995.15 02/09 744.32 10/07 -18.9% 81.06
1967 943.08 09/25 786.41 01/03 +15.2% 93.38
1968 985.21 12/03 825.13 03/21 + 4.3% 97.37
1969 968.85 05/14 769.93 12/17 -15.2% 82.58
1970 842.00 12/29 631.16 05/26 + 4.8% 86.56
1971 950.82 04/28 797.97 11/23 + 6.1% 91.85
1972 1036.27 12/11 889.15 01/26 +14.6% 105.24
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1973 1051.70 01/11[2] 788.31 12/05 -16.6% 87.79
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1974 891.66 03/13 577.60 12/06[3]-27.6% 63.59
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1975 881.81 07/15 632.04 01/02 +38.3% 87.95
1976 1014.79 09/21 858.71 01/02 +17.9% 103.66
1977 999.75 01/03 800.85 11/02 -17.3% 85.76
1978 907.74 09/08 742.12 02/28 - 3.2% 83.06
1979 897.61 10/05 796.67 11/07 + 4.2% 86.54
1980 1000.17 11/20 759.13 04/21 +14.9% 99.46
1981 1024.05 04/27 824.01 09/25 - 9.2% 90.28
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1982 1070.55 12/27 776.92 08/12[4]+19.6% 107.97
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[1]Beginning of 1965-82 bear market. [2]Closing
high during 1965-82 period. [3]Closing low during
1965-82 period. [4]End of 1965-82 bear market --
total 12/65 to 8/82 price-only return = -19.8%.
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The 1973-1974 Time Frame
From its 1973 high close -- a record -- through its final 1974 low, the DJIA fell 45.1%. The respective values and dates were 1,051.70 (1/11/73) and 577.60 (12/6/74). This 23-month, 45%+ decline equaled a little more than half of the DJIA's 1929-1932 Great-Depression era loss of 89.2% (close to close: 381.17 on 9/3/29, to 41.22 on 7/8/32).
I was managing a sizable amount of aggressive equity money around the time. Therefore, I remember the 1973-1974 episode quite vividly. I also remember that many pundits of the era were convinced that the 1974 lows marked the end of the great secular bear market of 1965-1982. Since I have dated the end of that affair as 1982, the pundits were wrong, or at least they were as I assess the situation, as discussed earlier.
But after the Dow's 1974 low was made, happier days indeed returned -- for a while.
The DJIA's next highest close after December 1974 came on 9/21/76, at 1,014.79. Over this 33.5-month period, the Dow gained more than 75%. Nevertheless, this wonderful rise failed to take out the 1973 high, leaving the Dow standing 3.5% below it. And of equal if not greater importance, almost six years later, the DJIA stood at 776.92, 23.4% below 1976's high water mark and more than 26% below 1974's record high.
During the current cycle, the Dow fell almost 38% between 1/14/00 and 10/9/02 (11,722.98 to 7,286.27). From October 2002 through its next high close -- 10,854.54 on 12/28/04 -- the DJIA was up almost 49%. Other bellwether measures rose a good deal more.
Conclusion
As always, the market will do what it will do, and it will be actual as well as perceived fundamentals that make it do it. I will continue to analyze and write about them.
But those considerations were not the force driving this article. Instead, using an example from a past situation with similarities to the current one, I wanted to illustrate that just because the stock market has risen a good deal over a meaningful period by no means assures us that the long-term bear market -- the secular bear -- is over. All that may have occurred was a period intersection between the long-term negative trend and a shorter-term positive one.
Special Announcement
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