So, 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 overvaluation 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 dshort.com, have a look at our our market recovery as compared to other recoveries of the past century.

Check out how our stock market recovery's doing >

 

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Comments

[Stephen Herrington]

10:03 PM on 07/12/2010

All the more reason to get rid of Social Security..­.oh wait...wro­ng channel. I thought this was Fox News.

[lightningbolt]

04:34 PM on 07/12/2010

Since the crash of 2008, the stock market has been propped up by corporate subsidies and bailouts.

[blueken]

04:22 PM on 07/12/2010

Wall Street is built on trust. Boy they burnt through that didn't they? I looked at the Gulf "spill" and decided it was not price into the market, so the first week of May, I got out of stocks. I think a lot of people are going to be affected. The Gulf coast is a great resource and it's future looks cloudy to say the least. I know I plan vacations months in advance, and not knowing whether it will be safe to go swimming in the ocean is a deal breaker. When I'm on vacation I like to wake up to the smell of the ocean, not crude oil. This will ripple through the economy. I might dip my toes back in in Sept, but the oil will still be on the Gulf shores and it looks like the crooks will still be running Wall Stree as they see fit.