How’s Our Stock Market Recovery Doing?

After last week’s welcome rally, the S&P 500 is now 31% below its October 2007 peak.October 2007 was 33 months ago.

So how is our stock market recovery doing relative to others in history?

Not well.

Most normal bear markets would have long since recovered and gone on to new highs.  And given that our bear market is basically just a resumption of the bear market that started in 2000, our recovery is doing really not well.

Of course, that’s because the market move since 2000 is a secular (long-term) bear market, not a cyclical (short-term) bear market.  And based on the length and depth of other secular bear markets, as well as ongoing overvalation of our major indices, our secular bear market likely has a long way to go.

How long do secular bear markets last?

The last US secular bear market lasted from 1966 to 1982.  Over that 16-year period, the DOW was flat in nominal terms.  After adjusting for inflation, it got smashed.

One of the worst secular bear markets in the US lasted from 1929 to about 1950.  20 years after the crash of 1929, the S&P briefly traded at one half its 1929 peak.

And then there’s Japan. Japan’s NIKKEI peaked in 1989 at nearly 40,000.  Now, 23 years later, it is trading around 10,000–one quarter of its value 23 years ago.  So they’re not kidding when they talk about “stocks for the long run.”

Will our DOW be trading at 3,000 in 2023–the equivalent to Japan’s horrorshow?  Boy, we hope not.  It’s possible–anything’s possible.  But one thing we have going for us is that our market wasn’t quite as overvalued in 2000 as Japan’s was in 1989 (though it was extremely overvalued).  Even today, though, our market is probably still at least 20% above fair value, and, over time, it will probably regress to (and below) the mean.  So the long-term forecast calls for more pain.

We can worry about that later, though.  In the meantime, courtesy of chart-master Doug Short at, have a look at our our market recovery as compared to other recoveries of the past century.

To begin… Here’s a look at where we are today: 31% below the peak 33 months ago, at about the same level we first hit 12 years ago

And now, step back: Here’s a look at all the bear markets since 1950.

And now, step back: Here's a look at all the bear markets since 1950.

Looks better when you look at it that way.  But don’t forget: These numbers aren’t adjusted for inflation.  On a “real” basis, the performance has been a whole lot worse.(Of course, they’re also excluding dividends, which provide a big part of the stock market return).

Chart by: Doug Short at

And now let’s look at some earlier recoveries, starting with 1956-1957. That one took about a year…

1961-1962 took a bit longer…

Same for 1966 (But that was the start of a hideous 16-year secular bear market in which the DOW went nowhere)

Same for 1966 (But that was the start of a hideous 16-year secular bear market in which the DOW went nowhere)

Well, the marked didn’t exactly go “nowhere” from 1966-1982. Sometimes it plunged.

And plunged again…

And plunged again...

And plunged one more time. But… all that plunging and going nowhere finally set us up for that amazing secular bear market that started in 1982. 18 years of ka-ching!

With some brief “dips” along the way, of course. Like 1987.

And 1990. But those dips were very short-lived. That’s why we all learned to “buy the dips.” Which eventually set us up to get killed.

Remember buying the “dip” that began in the spring of 2000? Ouch. So do we. It took the market 5 years to recover from that one. And now we’re back below that level again.

And, sadly, there’s a reasonable possibility that this bear market could turn out to be one of those super-nasty ones that basically take FOREVER to recover–like these.

Because, after all, stocks are still about 20% overvalued when viewed on a cyclically adjusted PE

Because, after all, stocks are still about 20% overvalued when viewed on a cyclically adjusted PEBlue line = cyclically adjusted PE; Red line = interest rates

Image: Professor Robert Shiller, Yale University

(The cyclically adjusted PE is Yale professor Robert Shiller’s valuation method. It averages 10 years of earnings, so as to smooth out the effect of the business cycle.  It is vastly more informative than a single-year PE, which often makes stocks look misleading expensive or cheap).Chart by: Prof. Robert Shiller

But we’ll keep our fingers crossed. And pray for that v-shaped recovery…

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