Showing posts with label market cycles. Show all posts
Showing posts with label market cycles. Show all posts
Thursday, 13 September 2012
Sunday, 29 November 2009
What is Predictable? Market Cycles
You can count on Performance Bursts
Years
Percentage Change*---- Cycle
1901-1903
-30.55% Correction
1904-1905
95.89% Burst
1906 -1907
-38.93% Correction
1908-1909
68.60% Burst
1913-1914
-37.89% Correction
1915
81.66% Burst
1916-1917
-24.98% Correction
1918-1919
44.17% Burst
1920
-32.98% Correction
1921-1922
37.22% Burst
1929-1932
-80.02% Correction
1933-1936
200.18% Burst
1937
-32.82% Correction
1938
28.06% Burst
1939-1941
-28.30% Correction
1942-1945
73.86% Burst
1973-1974
-39.59% Correction
1975-1976
63.03% Burst
*Year over year percent change in DJIA Index, excluding dividends.
What most investors don't know is that market cycles are fairly predicatable (see above). This is good news!
The above exhibit shows the powerful performance bursts that have followed each market decline of 20% or more as measured by the year over year change in the DJIA Index. It's as if the markets understand Newton's law of physics, that for every action there is an equal and opposite reaction. Over the past 100 years there have been 9 year over year market corrections of 20% or more and after each correction a performance burst has helped to salvage investors' fortunes.
In April of 2003, the markets had already started to reverse the bear trend. Unfortunately, many investors are still sitting on the sidelines because they were burned by losses incurred in the Y2K bear market. Most investors, retail and institutional alike, were surprised by the uptrend, but once again a good working knowledge of market history would have allowed them to anticipate a significant move to the upside. After every major market decline, markets have snapped back with a performance burst to the upside. These uptrends tend to be very powerful, lifting investors' account balances and spirits at the same time.
Years
Percentage Change*---- Cycle
1901-1903
-30.55% Correction
1904-1905
95.89% Burst
1906 -1907
-38.93% Correction
1908-1909
68.60% Burst
1913-1914
-37.89% Correction
1915
81.66% Burst
1916-1917
-24.98% Correction
1918-1919
44.17% Burst
1920
-32.98% Correction
1921-1922
37.22% Burst
1929-1932
-80.02% Correction
1933-1936
200.18% Burst
1937
-32.82% Correction
1938
28.06% Burst
1939-1941
-28.30% Correction
1942-1945
73.86% Burst
1973-1974
-39.59% Correction
1975-1976
63.03% Burst
*Year over year percent change in DJIA Index, excluding dividends.
What most investors don't know is that market cycles are fairly predicatable (see above). This is good news!
The above exhibit shows the powerful performance bursts that have followed each market decline of 20% or more as measured by the year over year change in the DJIA Index. It's as if the markets understand Newton's law of physics, that for every action there is an equal and opposite reaction. Over the past 100 years there have been 9 year over year market corrections of 20% or more and after each correction a performance burst has helped to salvage investors' fortunes.
In April of 2003, the markets had already started to reverse the bear trend. Unfortunately, many investors are still sitting on the sidelines because they were burned by losses incurred in the Y2K bear market. Most investors, retail and institutional alike, were surprised by the uptrend, but once again a good working knowledge of market history would have allowed them to anticipate a significant move to the upside. After every major market decline, markets have snapped back with a performance burst to the upside. These uptrends tend to be very powerful, lifting investors' account balances and spirits at the same time.
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