U.S. Money Supply Recently Did Something for the First Time Since the Great Depression — and It May Signal a Massive Move to Come in Stocks
2024-10-05 11:41:00
For the better part of two years, the bulls have been running wild on Wall Street. In 2024 alone, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and innovation-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) all soared to multiple record-closing highs.
But if history teaches investors anything, it’s that the stock market rarely moves up or down in a straight line. Though there’s no such thing as a forecasting tool that can, with 100% accuracy, concretely tell the future and accurately predict short-term directional moves in the Dow Jones, S&P 500, and Nasdaq Composite, it doesn’t stop investors from trying to gain an edge.
One such predictive tool, which thus far, has a perfect track record of correlating with sizable moves in the stock market spanning more than a century, is currently portending a massive move to come in equities.
History differs significantly based on your investment time frame
The prospect of a stock market correction or bear market probably isn’t something the investing community wants to hear about. However, history is a two-sided coin that, in many instances, strongly favors investors with a long-term mindset.
Despite all the well-wishing in the world, recessions are a perfectly normal and inevitable part of the economic cycle. Since the end of World War II, there have been a dozen recessions in the U.S., which works out to a downturn every roughly 6.6 years.
But what’s interesting about recessions is how quickly they resolve. Out of the 12 recessions over the last 79 years, just three surpassed the 12-month mark, and none endured longer than 18 months. Comparatively, most periods of growth have lasted multiple years, with two economic expansions reaching the 10-year mark.
Even though stocks and the U.S. economy aren’t tethered at the hip, a steadily growing economy would be expected to have a positive impact on corporate earnings over time. Earnings growth is a key ingredient to sending stock valuations higher.
This variance in perspective, based on your investment time frame, is also easily identified on Wall Street.
In June 2023, shortly after the S&P 500 was confirmed to be in a new bull market (i.e., had bounced more than 20% from its 2022 bear market low), the researchers at Bespoke Investment Group released the data set you see above on social media platform X. This data set measured the length of every bear and bull market in the S&P 500, dating back to the start of the Great Depression in September 1929.
Whereas the average S&P 500 bear market has endured for 286 calendar days, or roughly 9.5 months, over a 94-year period, the typical bull market has stuck around for 1,011 calendar days, or about two years and nine months.
To add, the longest S&P 500 bear market in history (630 calendar days), which occurred from Jan. 11, 1973 through Oct. 3, 1974, is shorter than 13 out of 27 S&P 500 bull markets. There have been nine bull markets that have ranged from 1,324 calendar days to 4,494 calendar days.
Even without being able to pinpoint ahead of time when stock market corrections will begin, how long they’ll last, or where the ultimate bottom will be, close to a century of history makes it crystal clear that maintaining perspective and being optimistic is a winning formula on Wall Street.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
U.S. Money Supply Recently Did Something for the First Time Since the Great Depression — and It May Signal a Massive Move to Come in Stocks was originally published by The Motley Fool
