I keep returning to this graph. It bothers me! I do believe history is a good guide to the future — but only until it isn’t. History is less important in a society where the rate of change is increasing. But first, take a few minutes to study this graph:
In the last 112 years, the Dow has fallen 30% or more thirteen times. This chart measures the strength of each recovery. Currently, we are sitting at record highs despite being a relatively weak recovery. This tells me that it is unimportant that we are at record highs — there is still lots of upside for the market.
Generally speaking, the greater the bear market, the greater the bull recovery. In other words, we didn’t suffer a mere 30% decline in the Dow during 2008/9. We fell a whooping 52%, suggesting our current recovery should be stronger than average. But, obviously, it is not.
If history is a guide, we’re entitled to a stronger stock market recovery than we’re getting!
One difference in our current history is that we are now more globalized than ever, and the rest of the world is growing more slowly. Another difference is that we now have a dysfunctional political model.
So, all we need to do is fix Europe and fix Washington, right? Piece of cake!