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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 pm

Source: 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

View More Articles By The Montgomery Team

Roger Montgomery is the Chief Investment Officer of Montgomery Investment Management, montinvest.com, and author of blog.rogermontgomery.com.

Roger's step-by-step guide to valuing the best stocks and buying them for less than they're worth, Value.able, is available exclusively at rogermontgomery.com. Skaffold is an online stock-picking application that rates ASX-listed stocks from A1 to C5. Watch a demo of Skaffold at www.skaffold.com.



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