Are we going to see a market crash?

8 paź 2021

Looking at the S&P index long-term on a log chart gives a lot of perspective. Over the years since the great crash of 1929, which signaled the Great Depression, the S&P index has followed an exponential increase within the channel drawn here. There have been three occasions when we've gone into a "lull", i.e. a market that doesn't provide enough long-term returns. This happened of course during the Great Depression, shown by the horizontal line at 18.27, which was broken in 1950 (an almost 20 year lack of long-term returns!). The second time this happened was in the 1970s, with the horizontal line drawn at 108.98, which was broken in 1980 (smaller flat market with 11 years spent to break the price). The third and final major draw down was following the dot com bubble, and the 2008 market crash, which lasted 13 years, with a horizontal line drawn at 1538.96. So the question is are we at a time when we should anticipate another major crash that will keep us in limbo for long-term investing? A few observations make me a little positive.

First, these major slowdowns have happened within a span of 20 years (1950 first slowdown ends, and 1970 next slowdown begins), and again a span of 20 years (1980 second slowdown ends, and 2000 next slowdown begins). Our last slowdown technically ended 2013. So, if we follow the same trend, I don't expect we'd be in any major slow market following a crash until 2033. On the parallel trend, we're no where close to the highs from 1929 or 2000. The only cause of worry, is the slowdown in the 1970s, which did not start at the top of the parallel trend. That slowdown was a result of increased inflation. We face the same questions now, so it is essential that inflation is transitionary, and not long-term.

Looking forward to your thoughts.