Hussman on Market Cycles

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understand the market cycle. Since 1940, the market has experienced 13 bull market advances of at least 25% from a bear market low, and 13 bear market declines of at least 20% from a bull market high. Bull market advances during this period have averaged a 123% price gain, a 162% total return, and a duration of 4.4 years. Bear market declines during this period have averaged a 35% price loss, a 32% loss including dividends, and a duration of 1.3 years. So dividends have helped to boost the bull market gains and mute the bear market losses to some extent, but with a dividend yield of just over 2% on the S&P 500, this effect is not very strong at present. Combining bull and bear markets, the average market cycle has averaged a 45% price gain, a 79% total return, and a duration of 5.6 years. This works out to an annualized total return of 10.9%, and an annualized capital gain of 6.9%, that gap being bridged by dividends, which have represented nearly 40% of total returns over time.

Pre-war market cycles tended to be shorter and more violent. Taking market history since the early 1920’s, the market has experienced 23 bull market advances of at least 25% from a bear market low, and 23 bear market declines of at least 20% from a bull market high. Taken together, bull market advances during this period have averaged a 102% price gain, a 129% total return, and a duration of 2.9 years. Bear market declines during this period have averaged a 37% price loss, a 35% loss including dividends, and a duration of 1 year. Combining the two, the average market cycle has averaged a 27% price gain, a 50% total return, and a duration of 3.9 years (which is why market historians used to think in terms of a standard “4-year cycle”). All of this works out to an annualized total return of 10.9%, and an annualized capital gain of 6.3%.