Stocks go through robust periods where it seems that there is no end in sight to market gains, only to be blindsided years later by a similarly extreme market performance to the downside. For the long-term investor, market cycles represent seasons to enjoy profits, suffer losses or hunt for buying opportunities and, eventually, these periods come to an end.
Most bull-market runs -- in which the stock market routinely sets record highs -- typically unfold over two-year periods. Nonetheless, there were a handful of above-average bull markets, which can also be labeled as secular bull markets, that occurred between the start of the 20th and 21st centuries, according to Ned Davis Research data. In these four mega-bull market cycles, which played out over periods enduring between two-and-six years, the Dow Jones Industrial Average produced yearly gains of anywhere from 8 percent to nearly 25 percent.
Bear market cycles, when stocks lose one-fifth of their value or more, generally take investors by surprise. They are not partial to any one region or economy and can cause severe financial losses for investors, including those saving for major events such as retirement. Bear markets are persistent and typically endure for more than one year. The average bear market triggered losses of more than 30 percent in the 111 year period beginning at start of the 20th century.
Market cycles can last for a period of months or even several years. A historic performance cycle however, has proven to emerge emerge every 15 years, which is unusually long. The first signs of this cycle occurred in the 15 year period beginning in 1984, when the S&P 500 index produced annual returns of some 15 percent, according to the "New York Times." In the next wave of that 15-year cycle, however, beginning in 1996, weakness persisted throughout as the average yearly stock market returns were only 3 percent.
The stock market cannot easily be predicted despite the fact that market participants often try. Nonetheless, throughout history, there are parallels with times of war and eventual peace tied to stock market performance. During major 20th Century wars, including the first and second World Wars, stocks suffered severe bear markets, according to market strategist Jeffrey Hirsch. When the wars were over and calm returned, the sentiment in the stock market similarly rebounded and bull markets ensued.
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