Jeff Hirsch on Stock Market Cycles
- Joshua M Brown
- August 23rd, 2012
The Stock Trader's Almanac editor Jeff Hirsch did an interview with Investors Business Daily this week. He's out with a new book 'The Little Book of Stock Market Cycles" and he gave IBD readers a bit of background on his (and his father's) life's work:
IBD: What are the stock market cycles and what stage are we in?
Hirsch: There are many stock market cycles, ranging from the long-term cycles that last a decade or more, to multiyear cycles, to seasonal and short-term patterns down to daily cycles.
In my book, I highlight the most pervasive and discernible market cycles that continue to influence the market to this day. The long- term cycle of secular bull and bear markets has been driven by the cycle of war and peace, financial crisis and inflation.
The three secular bears of the 20th century surrounded the three major wars: World War I, World War II and Vietnam. Following these wars were periods of peace; prosperity accompanied secular bull market moves that lasted for many years and drove the market higher by 500% or more.
After the financial crises of the early 20th century and WWI, the Dow rose 504% from 1921 to 1929. After the Depression and WWII, the Dow rose 523% from 1949 to 1966. In the 1970s, stagflation and the Vietnam War gave way to the greatest boom in a generation, and the Dow skyrocketed 1,447% from 1982 to 2000.
Once crisis dissipates and the troops come home, inflation kicks in and holds the market in its range for several more years.
As inflation tapers off and government begins to function properly again, getting out of the way of the private sector where appropriate and aiding effectively, the market takes off again on a steady diet of new enabling and a cultural-paradigm-shifting technology.
In the 1920s, it was the automobile. In the 1950s and 1960s it was TV, space exploration, home appliances and the military industrial complex.
In the 1980s and 1990s, the information revolution built the microprocessor, the Internet, and cellular communications, fueling the longest boom in modern times.
Within these secular bull and bear markets, the stock market is influenced by the four-year presidential cycle and seasonal market patterns. The election of a U.S. president every four years has created a pattern of weakness the first two years, no losses in the third year since 1939 and modest gains in election years on average.
Right now we are in the second half of the secular bear that started in 2000, but in a cyclical bull that began in October 2011. 2012 is tracking quite closely to the standard election-year market pattern. We are also in the seasonal "Worst Six Months" of the year (April to October).
Be sure to head over for the whole interview, Jeff's work has been very influential for us here at Fusion and he's an all-around good guy.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.