“Many cycles analysts talk about the “long cycle” of the stock market being the 54-year Kondratiev Wave, named for the Russian researcher who wrote about long economic cycles in 1925. My own research shows that it is a 40-year period which matters more for the stock market. The 40-year period also shows up in other economic events like gold rushes, real estate bubbles, and economic wars.
The stock market has had important bottoms in 1861 (Civil War), 1903 (Rich Man’s Panic), 1942 (WWII), and 1982 (Cold War climax). There were also other important bottoms along the way, but these were the bottoms which match up with the 40-year cycle. Perhaps more importantly, these were the bottoms that the market went up from, as opposed to the rogue wave sorts of bottoms that merely see a return to the old equilibrium.
The bull market of the 1980s and 1990s was stronger than earlier ones if measured just in nominal changes to the major indices. But it was similar to the bull market of the 1940s and 1950s when we account for differences in dividend payments. This week’s chart helps us to see that point. It compares the performance of the DJIA with dividends reinvested (total return) for two different periods, with the 1942 and 1982 bottoms aligned.
The scaling on the chart is logarithmic, which allows us to better compare the two price series which would otherwise look like parabolic up swings if posted on a chart with arithmetic scaling. The vertical scaling of each Y-axis is equivalent, so that similar percentage price moves get equal treatment.
The first interesting observation is that…”
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