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Journal of Indexes

How Now, Dow Jones?

Related ETFs: OIL | NY
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David A. Poole, now retired and consulting from Chappaqua, NY, but formerly chief economist at mutual fund manager Van Eck Global, uses the Dow Jones Industrial Average to follow the seesaw movements of the stock market since the Dow's inception in 1896, searching for repeating patterns both large and small. The biggest patterns of all seem among the most regularly recurring.

As you can see from the tables Poole has supplied, the market has followed, at least since 1899, a strikingly regular pattern of large gains in discrete market eras running 15 to 20 years, separated by similarly long periods in which the market fluctuated but ended significantly down when the next big upswing started. There is a lesser series of trends-within-the-trend that last roughly four or five years.

Poole himself ventures little in the way of explanation. One could postulate the effects of the periodic bank crises that shook the country before WWI, then peace and prosperity in the Twenties, followed by Depression and WWII, in turn followed by 1950s expansion, Vietnam and inflation and Oil Crisis, Reagan era and Greenspan era. But why should historical intervals have such apparent regularity? Or could it be the market has long cycles of optimism and pessimism of its own?

STOCK MARKET - POSSIBLE PATTERN MARCH 31, 2000
Dow Jones Industrials Average 1899 - 2000
15 YEARS ending LOWER: 1899 High 77 to 1914 Low 53 DOWN 31%
15 YEARS ending HIGHER: 1914 Low 53 to 1929 High 381 UP 620%
20 YEARS ending LOWER: 1929 High 381 to 1949 Low 161 DOWN 58%
17 YEARS ending HIGHER: 1949 Low 161 to 1966 High 995 UP 520%
16 YEARS ending LOWER: 1966 High 995 to 1982 Low 777 DOWN 22%
17 YEARS ending HIGHER: 1982 Low 777 to 2000 High 11908 UP 1430%
as of Jan. 14
Guesstimate:
16 YEARS ending LOWER: 2000 High to 2016 Low DOWN ?
N.B. This cycle modifies popular estimates of "long-term" returns from common-stock investment, often cited about 9 percent annually.

STOCK MARKET AND BUSINESS CYCLES 1896 - 2000
                # YEARS OFFICIAL
                LOW TO RECESSION
LOW DJI HIGH DJI % RISE LOW DJI % DROP LOW LOWS
1896 28 1899 77 +175% 1900 53 -31% 4 1900
1900 53 1901 78 + 47% 1903 42 -46% 3 1904
1903 42 1906 103 +145% 1907 53 -48% 4 1908
1907 53 1909 100 + 88% 1911 73 -27% 4 1912
1911 73 1912 94 + 29% 1914   Mkt closed Aug-Dec. 1914
1914* 53 1916 110 +107% 1917 66 -40% 3 1919
1917 66 1919 119 + 80% 1921 64 -46% 4 1924
1921 64 1925 160 +150% 1926 135 -15% 5 1927
1926 135 1929** 381 +182% 1929 199 -48% 3 --
1929 199 1930 294 + 47% 1932 41 -86% 3 1933
1932 41 1937 194 +373% 1938 99 -49% 6 1938
1938 99 1940 153 + 55% 1942 93 -39% 4 --
1942 93 1946 212 +128% 1946 163 -23% 4 1945
1946 163 1948 193 + 18% 1949 161 -17% 3 1949
1949 161 1953 294 + 83% 1953 255 -13% 4 1954
1953 255 1957 521 +104% 1957 420 -19% 4 1958
1957 420 1961 735 + 75% 1962 535 -27% 5 1961
1962 535 1966 995 + 86% 1966 744 -25% 4 --
1966 744 1968 985 + 32% 1970 631 -36% 4 1970
1970 631 1973 1052 + 67% 1974 577 -45% 4 1975
1974 577 1976 1015 + 76% 1978 742 -27% 4 1980
1978 742 1981 1024 + 38% 1982 777 -24% 4 1982
1982 777 1987 2722 +250% 1987 1738 -36% 5 --
1987 1738 1990 3000 + 73% 1990 2365 -21% 3 1991
1990 2365 1994 3978 + 68% 1994 3593 -10% 4 --
1994 3593 1998 9412 +162% 1998 7400 -21% 4 --
1998 7400 2000 11908 + 61%          
Jan.14
The number of stocks was raised from 12 to 20 in 1914*, to 30 in 1928**.

SOURCES: Dow Jones Averages 1885-- (Business One Irwin, Homewood IL), U.S. Dept of Commerce

Poole notes that the Dow in this year's first quarter fell topretty much where it was a year before, which is a drastic change from the rises in the preceding several years, and short-term indicators he also follows have been getting progressively more bearish all the while. Will history repeat? Or have the last 104 years just been one of those statistical coincidences? Hope for the latter: If the cycles do repeat we're on the cusp of a relatively lousy 15 to 20 investment years, as measured by the venerable old Dow.

HIGH & LOW STOCK MARKETS TO MARCH 31, 2000
*HIGH  
STOCK MARKETS LONG-TERM
YEAR GAIN
2000 + 1430% IN 17 YRS1982 to 2000
1987 + 370% IN 13 YRS1974 to 1987
1966 + 520% IN 17 YRS1949 to 1966
1937 + 200% IN 16 YRS1921 to 1937
1929 + 620% IN 15 YRS1914 to 1929
*LOW
STOCK MARKETS LONG-TERM
YEAR LOSS
1982 - 22% IN 16 YRS1966 to 1982
1974 - 21% IN 13 YRS1961 to 1974
1949 - 58% IN 20 YRS1929 to 1949
1932 - 62% IN 16 YRS1916 to 1932
1921 - 38% IN 15 YRS1906 to 1921
*Based on performance of the Dow Jones Industrial Average
 

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