The Stock Market Super Cycle (the stock market cycle length)

The early years of the NYSE and the DJIA were marked by several financial “panics” – including the Panic of 1901, the Panic of 1907, and the Panic of 1910–1911. These panics were usually associated with liquidity issues and bank runs, which would cause a domino effect as bank loans were recalled to provide the needed cash to hold off a bank run, which would fail and cause businesses to default. In order to deal with these liquidity issues in the future, Congress created the Federal Reserve System.[1]

With the creation of the Federal Reserve, financial stability provided the foundation upon which the first up cycle of the stock market occurred. From a low of 52 in 1914 to a market peak of 351 in 1929, the stock market boomed. It was the Roaring ‘20s, and anything was possible. In fact, John Raskob, the former president of General Motors and future financier of the Empire State Building, said as much in an interview for the Ladies’ Home Journal in August 1929, titled “Everybody Ought to Be Rich.”[2] It seemed as if everyone was investing in the stock market, and most people were buying on margin. As is the case with any speculative bubble, all good things must come to an end, and that occurred on Black Thursday, October 24, 1929.

The stock market has multiple cycles operating simultaneously. It is extremely sensitive to the 9-year business cycle, and is affected by the expansion-recession periods of that cycle. The stock market is also affected by an overall “secular” cycle. The overall cycle has a length of 36 years and two components: an 18-year period of flat or level (secular bear) performance, and an 18-year period of steadily increasing (secular bull) performance that reaches the next “level” value. These periods are easily seen on a graph of the DJIA on semi-logarithmic paper and are called Stock Super Cycles. There have been three of these cycles in the last 100 years .

  • Cycle 1: In the Roaring ‘20s, the Dow climbed from a low of 63 to a peak of almost 400. Then the Crash of 1929 occurred, and the Dow and the country went through a depression that lasted until World War II.

  • Cycle 2: From 1946 to 1965, the Dow went from 200 to 1,000. That was the period of the “Nifty 50” stocks – so called because, no matter what the price of one of those shares was when you purchased it, it just kept going up. From 1965 to 1982, the Dow hovered around 1,000 for 17 years. It was a period of war, civil unrest, inflation, and stagflation.

  • Cycle 3: The Dow went from 1,000 in 1982 to 10,000 in 2000. That 18-year period was the most expansive and profitable on record. Since the Dow hit 10,000 in 2000, it has been another wild ride. It sunk to as low as 6,547 in 2009 and in 2017 went over 21,000.

[1] The Panic of 1907: Lessons Learned From the Market’s Perfect Storm, by Robert F. Bruner and Sean D. Carr, 2007, John Wiley & Sons, New York, New York

[2] The Great Crash 1929, by John Kenneth Galbraith, 1954, Houghton Mifflin Company, New York, New York, page 52

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