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Posted on 11 March 2011 | 6,421 views

The Secular Bear Market of 2000 through 2020

Investors shouldn’t count on the markets bouncing back any time soon, as there is evidence that stock markets have be trending downward for a long time.

The U.S. stock market is in a “secular bear market,” a long period in which equity markets experience flat or declining growth, punctuated by a series of bear market cycles. As the cycle progresses, each bear market cycle lasts longer and descends lower than the previous one, reaching lower and lower market bottoms and taking longer amounts of time to get there.

There have been three secular bears in the U.S. stock market — the period between 1906 to 1921, theĀ Great Depression period of 1929 to 1949, and the stagflation period of 1966 to 1982. Right now, a fourth secular bear market cycle is emerging in the stock markets, which may last over the next seven to ten years.

Analysts have been saying the current secular bear market began with 2000’s “Tech Wreck” or “Dot-Com Bomb.” The first of several market bubbles to burst in this first decade of the 21st century, which has paved the way for subsequent housing and credit bubbles. SecularĀ bear markets come as a result of speculative bubbles, and you don’t purge a speculative bubble with one bear market cycle.

The bear market cycle of 2000-2003 and the 2007-2009 may be the beginning of a series of bear markets that could take the markets lower than the Dow Jones Industrial Index low of 6,547.05 set on March 9, 2009, like a long term support level of 4003.33 last set on February 23, 1995.

Since the secular bear market started in 2000, the markets could be flat or trending lower until 2020, which could be the worst bear market environment investors have ever seen since the last Great Depression. Another bear market is expected to unfold again between 2011-2014 which will probably be the worst of them all in this current secular bear cycle and pave the way for “Regional Depressions” throughout the United States eclipsing our “Great Recession.”

It doesn’t make sense to be a buy and hold investor in this type of market. Investors must be willing to sell stocks and turn gains into cash during rallies that can then be used to buy stocks at bargain prices during this long-term bear market cycle. We will see several bull market runs throughout the next decade where investors can outperform the market.

References:

Framing Market Cycles: Speculators, Skeptics & Suckers
Prediction is Difficult, Especially About the Future

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