September 25, 2010
Note from dshort: I had retired this chart series in early August in deference to my prefered inflation-adjusted series that aligns the S&P 500 2000 high with the Nikkei peak in 1989. However, I've had several requests to reinstate this version, so here it is again.
This chart series overlays the current S&P 500 with the L-shaped "recoveries" after the Dow Crash of 1929, the Nikkei 225 after Japan's 1989 bubble, and the post Tech Bubble NASDAQ. Click the chart below for a larger version and use the links to see various comparisons.
I've also included an updated two-decade inflation-adjusted chart, which gives us a fascinating visualization of the impact of inflation on long-term market prices. The higher the rate of inflation during a bear market, the greater the real decline. Compare, for example, the peak of the Dow rally in year seven with the same peak in the two-decade nominal chart. The difference is the result of deflation during the Great Depression.
It's rather stunning to see the real (inflation-adjusted) decline of the Nikkei, two decades years after its crash. The recent lows rival the traumatic Dow bottom in 1932, less than 3 years after its peak.
These charts remind us that bear markets can last a long time. And it's not necessary to go back to the Great Depression for an example.
| See also my preferred version, which puts the start of the current secular bear in 2000 with the popping of the Tech Bubble. In inflation-adjusted terms, the S&P 500 reached its all-time high in March 2000. Although the nominal high in October 2007 was higher, the "real" high was not. |
Note: These charts are not intended as a forecast but rather as a way to study the today's market in relation to historic market cycles.
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