Great Bear Markets Take Their Time
Yes, it already seems like we’ve been waiting a long time
for the market low, but actually this wait is far from
remarkable on a historical basis. In fact, a low in these
next 24 months would be the most typical timing we
could expect from history. But this market cycle has been
interestingly different from earlier bubbles and probably
we should not expect a typical experience.
The first difference is that the market in 2000 went far
higher than ever before: 34 times trailing earnings versus
21 times at the market tops of 1965 and 1929. Even
Japan, adjusted for cross holdings, was not materially
higher. Second, the sustained phase of declining interest
rates and easy money has no historical US parallel, either
in extent or duration. Third, stock ownership was far
broader than ever before, so that the great majority of the
readers of large circulation magazines, for example,
owned stocks this time, while they did not in the other
bull markets....
The normal tendency is for the length of the market
decline following a bubble to take about the same time or
a little less to get back to trend as the market increase took
from trend line to peak. For this down cycle from March
2000, that would lead us to expect a market low this year
or next. And admittedly there is quite a bit of noise
around this average, although less than you’d probably think.
A low in 2009 and 2010 would be just within the
normal range at the longer end and 2002 would equally
have been just within the short end of the normal range.
Indeed, in September 2002 when the S&P tumbled to
775, which was half its peak price, the market looked for
a couple of weeks like it might just make the real break
and slice through the then fair value of 700+/- and
establish a real low, say in the low 600s, and get this
whole unpleasantness out of the way.
