My timing was pretty good. As it turned out the Dow Jones saw two new all-time highs this week, the week I returned from a month long break. These new all-time highs in the Dow Jones marks the termination of the fourth correction in the post sub-prime/credit crisis bull market (see BEV chart below). Since its start on March 9, 2009, the absolute bottom of the credit crisis -54% bear market (Dow 6,547), the Dow Jones has advanced 20,196 points, or 308% in the past 9.5 years.
Let’s do a quick study of these corrections, declines in the Dow Jones of greater than 10% in the past decade:
May to November 2010, a six month correction that took the Dow Jones down by -13.55% in July 2010.
May 2011 to January 2012, an eight month correction that took the Dow Jones down by -16.82% in October 2011.
May 2015 to July 2016, a fourteen month correction that saw a double bottom; a -14.45% bottom in August 2015 and a fractionally deeper bottom of -14.48% bottom in February 2016.
January 2018 to September 2018, an eight month correction that took the Dow Jones down by -11.58% in March 2018.
Of the four corrections, our latest was the Dow Jones’ mildest, taking the Dow Jones below its -10% BEV line by only 1.58% during this eight month period. We should ask ourselves what is the purpose of a correction during a bull market – to give a pause in the market’s advance before the next phase in the bull market begins. So, in late September 2018 should we now anticipate the next phase in the current advance in the stock market? Well maybe, and then maybe not.
In either case one can’t deny how since March 2009 the Dow Jones has seen a wonderful advance. But historically speaking just how wonderful has this advance been?
Thinking in historical terms, how has our current advance compared to what the stock market saw during the Roaring 1920’s? That’s a fair question, so let’s compare the Dow Jones of the 1920’s to how it’s performed since March 2009.
Below I’ve done a frequency distribution of the daily values seen in the BEV chart’s plot above, all 2,382 of them with the 2,382 daily BEV values during the 1920’s bull market leading up to the September 3, 1929, Roaring 1920’s market top. Some explanation of the data and tables are required here. Typically I call a 0% (BEV Zero) a new all-time high, but in the tables below that isn’t always so.
I began the credit-crisis advance BEV series at the bottom of a -54% bear market. This meant the BEV data began producing BEV Zeros each time the Dow Jones advanced above that 54% bear market bottom; new highs for the advance to be sure; but defiantly not new all-time highs in the Dow Jones itself.
Interestingly the same is true for the data for the 1920’s. The BEV series for the 1920s begins on September 20, 1921 with the Dow Jones down 41.82% from its last all-time high. In September 1921 the Dow found itself a month into a recovery from a 46.58% bear market bottom that bottomed on 24 August 1921; the month before.
Also note of the 2,382 days in each sample, the advance from the 1920’s took only 8 years while the 2,382 days since March 9, 2009 took 9.5 years. This’is because until the mid-1950’s the NYSE, just as everyone else, worked on Saturdays.
Looking at the table’s “% From All-Time High” column, which as I’ve mentioned previously isn’t always the case in these two samples, we start with the 0% row, and these rows display the number of days closing at new highs of the advance in the BEV data.
The -0.000001% row catches those daily closings within a penny from making a new BEV Zero, down to -4.99% from a BEV Zero. If I didn’t include this row the 0% row would include all daily closings from new all-time highs down to -4.99% from one.
The -5% row catches daily closings within -5% down to -9.99% from a new all-time high, the -10% row catches daily closings within -10% down to 14.99% from a new all-time high, and so on and so forth.
Comparing these two market eras, the Roaring 1920’s bull market produced eleven fewer BEV Zeros than we’ve seen in the past decade. Also our current advance saw more daily closings within 5% of making a new BEV Zero (the -0.000001% row) than did the 1920’s. Still, the 1920’s Dow Jones advance took the Dow up by 448%, while in the past decade the Dow Jones is up only 307%. It’s interesting that neither advance saw a daily close deeper than 20% below a BEV Zero.
So how often does the Dow Jones go on making new BEV Zeros for years on end? In fact, since October 1981 when interest rates and bond yields peaked in double digits, and began a decline that bottomed in July 2016 (35 years); seeing the Dow Jones advancing to new highs has been the rule rather than the exception.
