A Birthday for the Bull Market

Welcome to today’s very special “Birthday Party Edition” of The Daily Reckoning! Our little bull market is two years old today… They grow up so fast! To begin the festivities, please put on your party hats and click on the following link:

Two years old and just as cute a button!… Yessirree, that’s our little bull market!

As of today, the S&P 500 Index has produced a dazzling total return of 103% during the last 24 months. The NASDAQ, for its part, has delivered a total return of 121%. Those are some great, big numbers for an itty-bitty bull market.

In fact, as The Wall Street Journal recently observed, the S&P 500 Index doubled from its March 2009 low in just 707 days – the fastest doubling of the S&P since 1936. Back then, it took a mere 501 days. The Dow Jones Industrial Average has not quite doubled, but almost:

Dow Performance Since its March 2009 Low

“The chart above looks eerily similar to a chart of the Dow from September 1934 through October 1936,” our colleagues at The 5-Minute Forecast relate. “In just over two years, the Dow doubled from 87 to 174:

Dow Performance, Sept. 1934-Oct. 1936

“What the Journal failed to note was what happened after that 100% climb in 1936. Let’s widen the scope a bit.

Dow Performance, Sept. 1934-March 1938

“Ugh… After reaching that double in October 1936, the Dow topped out in March 1937 at 194…pulled back…came within about 5% of that top again in August 1937…and then plunged by March 1938 back to where it was three years before.

“This was the infamous ‘Depression within the Depression.’ As went the stock market, so went the economy. Whatever gains had been goosed by New Deal spending evaporated. By 1939, Treasury Secretary Henry Morgenthau conceded to Congress: ‘We are spending more money than we have ever spent before, and it does not work… After eight years of this administration, we have just as much unemployment as when we started…and an enormous debt, to boot.’”

But the stock market’s tale of woe did not end in 1939. By April of 1942, the Dow had surrendered more than half its value from the 1937 top. Shortly after World War II ended, the Dow briefly revisited its 1937 high, before slumping anew and languishing for several more years.

Bottom line: The Dow did not break above its 1937 high, for good, until December 1949! We’re not saying history is destined to repeat itself. But the parallels are pretty obvious, and ominous.

Happy Birthday, Bull Market!

Eric Fry
for The Daily Reckoning