• Why is holding cash in the current market valuable? Read my most recent article for the Australian here

Catalysts that Ended Prior Bull Markets

06082018_bull markets

Catalysts that Ended Prior Bull Markets

The current bull market is only months away from becoming the longest in modern history, in fact if the market holds together through to September 2018, we will have crossed that mark. As we approach this “milestone” we thought it would be useful to reflect on the some of the other 11 bull markets that have occurred since WWII, paying particular attention to 6 of them, and importantly what was perceived to have caused their demise.

Prior Bull Markets Since WWII (Modern History)

Screen Shot 2018-08-06 at 2.08.23 pmSource: LPL Research, Facset  

#1: “The Great Expansion”: The longest bull market in history was “The Great Expansion”, which occurred between 1990 and 2000, it lasted 9.5 years (114 months) and delivered ~420 per cent (~19 per cent compounded annual growth rate (CAGR)) over that period. It took place during the “Clinton era”, in which job growth was robust, oil prices fell and stocks soared. It ultimately found its end when the “Dotcom Bubble” burst and as the Federal Reserve hiked interest rates six times between 1999 and 2000.

#2: The Post-Crisis Bull Run: The current bull market is now in its 114th month (August 2018) and only 1 month away from becoming the longest in modern history, it has delivered ~300 per cent (~17 per cent CAGR) so far. We obviously don’t know what will be credited for bringing this bull market to an end, since 2017 the Fed has hiked interest rates five times and is expected to do so twice more by year end 2018.

#3: The Post-War Boom: This bull market occurred after WWII, lasted for 86 months between 1946 and 1956 and delivered ~270 per cent (~20 per cent CAGR). Some of the narratives that are linked to bringing its end include the launch of Sputnik as Russia took the lead in the “space race”, U.S. President Dwight Eisenhower’s heart attack and the Hungarian Revolution.

#4: That ’70s Growth: Lasting for 74 months between 1974 and 1980, this bull market delivered ~130 per cent (~14 per cent CAGR) over that period. The Iranian Revolution, 1979 Energy Crisis and the return of surging, double-digit inflation were the factors blamed for bringing it to an end.

#5: Reagan Era: The highest returning bull market on an annualized basis was during U.S. President Ronald Reagan’s reign, it lasted 60 months (1982 to 1987) and returned ~27 per cent CAGR (~230 per cent). The good-times came to a historic end on Black Monday in 1987, when the market fell ~23 per cent on a single day and remains one of the most infamous market crashes in history. Some of the causes for the crash included program trading, overvaluation and illiquidity.

#6: The Hot Aughts: Our final bull market occurred between Bull Market #1 and #2, it lasted 60 months (2002 to 2007) and delivered ~100 per cent at a 15 per cent CAGR. Perhaps more famous than the bull market itself, was how this one ended. Fresh in many investors’ minds is of course the Global Financial Crisis (GFC) which came to an abrupt end after it hit a tipping point. Many years of excessive lending to subprime borrowers led to distortions in the U.S. property market and Wall Street’s creation of highly levered, exotic, financial products (CDO, etc) built on top of it causing U.S. household net worth to decline by ~$13 trillion (20 per cent) from 2007 pre-crisis peak.

Prior Bull Duration, Return and CAGR

Screen Shot 2018-08-06 at 2.09.50 pm

Source: LPL Research, Facset 

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Amit joined Montgomery Global Investment Management in April 2018 as a Senior Research Analyst after spending seven years as a credit analyst at Credit Agricole and Citigroup, based in New York. Prior to this, Amit was an investment banker with Citigroup for five years in New York and Sydney, focusing on Media and Telecoms; Metals and Mining; and Consumer Products.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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6 Comments

  1. Could a rough summary of downfalls be, when securities are overvalued and the interest rates hike, then a fall in the market occurs. My question is, if interest rates hike as in the US and independently by banks in Australia regardless of the RBA, could I then say we are nearing a crash?

  2. Carlos Cobelas
    :

    I know we shouldn’t say “this time is different” but did any of those previous bull markets
    have interest rates close to zero ?
    records are meant to be broken and it looks like this one will.

    • Although not covered in this article, the 1930s was the only period other than during and after the GFC where the Fed conducted QE by purchasing $1T of Treasury Securities in 1932 and rates were near zero-percent. It inflated asset prices and led the US to a recession in 1937 during the Fed’s rate hikes and an increase in tax rates by FDR.

  3. The real question is, what is the correlation (if any) between duration, return or CAGR versus how far the market fell in percentage terms from peak to trough ? i.e. the higher or longer it flies, the harder it falls ?

  4. In contrast perhaps an analysis of bear markets in identical format might give some perspective to those investors who might be (should be) interested in the opposite end of investment risk it time duration and depth.. Very interested in the mirror image especially given the underlying tone of the piece which implies ‘it’s coming’. Thanks Amit.

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