For the past several years, I have been writing about the likelihood that world stock markets entered a long secular bear cycle in 2000. In history these secular bear cycles have always followed long secular bull cycles and have averaged about 17 years from start to finish. The last secular bull cycle was 1982 to 1999. I thought it likely that this secular bear started in 2000.
When stock markets moved up from 2002 to 2007, I received many comments from people who took issue with the secular bear thesis: “stocks have been moving up for 5 years, so how could we be in a secular bear?”
The fact is that the cyclical bull in stocks during the expansion phase of the business cycle from 2002 to 2007, did absolutely nothing to negate the probability that we were and are still within a secular bear climate that could last another 7 to 10 years.
This big picture secular thesis is so far reinforced by the following three charts:
The Dow Jones Index has been range bound since 2000:
The S&P 500 has fared even worse, now down more than 30% from its last cycle peak over 8 years ago:
Both of these broad market indices have been harder still on Canadian investors who suffered further declines exasperated by the falling US dollar for 7 years to 2007.
The TSX Composite after much thunder and flash, and in its typically lagging pattern, is now falling back to retest its 2000 peak:
Why do we care about this?
We care because this means passive equity investors have suffered incredible volatility for the past 8 years and have had negative real returns for their reward.
We care because during secular bear climates, cyclical bears like the one that began in 2007 tend to last several months longer and drop considerably further than bear markets during a secular bull phase.
We care because buy and hold investors have been hurt over the past 8 years and their pain is likely to continue for several more years. We care because the long-always investment industry doesn’t seem to give a damn.
Its not that investors cannot make gains during a secular bear climate, its just that someone has to be focused on keeping those gains each business cycle. Sucessful strategies must be tactical about protecting capital from the end of cycle declines.
Cory’s Chart Corner
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