Secular Bear Market 1999 - Present

Reality Check for Investors:

Throughout the 90's investors bet heavily on high flying stocks pushing the market to extremes. Once the new millennium began the stock market hit a wall as the bubble burst on the telecom/dot.com stocks. Since hitting its month-end high in December 1999, the Dow Jones has entered into an extended bear market that some analysts (including Landmark Asset Management) have defined as a secular bear market. Over the past 5+ years the Dow Jones has witnessed a tremendous amount of volatility due to the 9/11 terrorist attacks, targeting Osama bin Laden in Afghanistan, accounting scandals of Enron/WorldCom, the Iraqi War and North Koreas possession of nuclear weapons, a couple of heated presidential elections (see Market Timeline).

Although this secular bear is in the early stages the Dow has completed one cyclical bear phase losing 34% over a 2.75 years period from December 1999 - September 2002. Since early October 2002 the Dow has entered a new cyclical bull phase which is possible still under way as of May 2004 (see Table 1). History is currently being written, so it will take time to measure the full extent of this secular bear market in terms of both magnitude and duration.

Bear Market Conditions:

The Dow Jones experienced an eleven fold increase in value from 1982 to 1999. The buy-and-hold strategy employed by investors over that time did exceptional well. As we have documented in our secular market overview, the markets are continually moving from one secular stage to another. Whether the Dow Jones is in an extended bear market or a full blown secular bear market, investors need to be proactive and a) diversify their portfolios with a variety of asset classes including managed futures and b) actively manage their investment portfolios with the help of professionals. The buy-and-hold strategies of the 80's and 90's are simply ill-equipped to deal with volatile sideways secular bear markets.

>>> Click for a ranking of all the cyclical bear markets that have occurred in the DJIA.

Chart 1: Dow Jones Secular 1999 - Present:

Table 1: Secular/Cyclical Market Review:

Market Timeline 1999 - Present:

In the late 90's investors subscribed to "the bigger fool theory"; the idea that no matter how much you pay for a security, there's a bigger fool out there who will pay even more when you decide to sell it. Success in the form of a rising market created a mood of confidence that built on itself to excess. The crescendo to the 1982 - 1999 secular bull market finally hit as the Dow Jones Industrial Average entered the new millennium.

• The markets top in early 2000 as the great telecom/dot.com bubble begins to unravel.
• Dow Jones hits record high of 11,722.98 on January 14, 2000.
• In early 2000 the market had its ups and downs. March 16, 2000 the Dow Jones posts its biggest single day gain in history as it surged 499.10 points or just under 5%. Not to be out done the Dow lost 617.78 points or 5.66% generating its biggest point loss in history on April 14, 2000.
• U.S. Presidential election is the closest on record with manual recounts in Florida. George W. Bush is FINALLY confirmed as President in December.
• March 2001 brings continued weakness in the global tech and telecom sectors. The Dow falls below 10,000 and Nasdaq falls below 2,000.
• September 11, 2001 terrorist attack the World Trade Center (New York) and Pentagon (Washington DC) killing more that 3000 people. The Dow drops by 14.3% from 9/10/2001 - 9/21/2001.
• Operation Enduring Freedom targets Osama bin Laden and the al-Qaida network in October 2001. The 'War on Terror" begins in Afghanistan. By November the Taliban begin a massive retreat effectively handing power over to a civilian administration.
• February 2002, The Nikkei closes below the level of the Dow for first time since 1957.
• The Scandals - including infamous energy giant Enron and telecom firm WorldCom - shakes the confidence of investors to the core during the spring and summer of 2002.
• March 2003 the Iraqi War begins. Iraq regime falls in early April as U.S. Troops enter Baghdad. The Pentagon announces that major combat operation are over as of April 14 and a search for Weapons of Mass Destruction and leading Iraqi personnel are under way.
• North Korea admits possession of nuclear weapons for the first time in late April 2003.
• Saddma Hussein captured in Iraq on December, 14 2003.
• November 2004, Bush wins his second Presidential term in office.
• The Dow Jones hits a new historical high at ~12,000 in October 2006. Is the secular bear over? Chances are the secular bear is still in tact given that the the S&P 500 and Nasdaq markets have yet to confirm their new highs. Plus it's important to note that during the 1966 - 1982 secular bear market that the Dow hit a new high in late 1972 (Phase 4) just before entering a new cyclical bear phase (Phase 5) within the larger secular bear market.

To be continued . . .

Table 2: Annual Returns by Year:

Detailed Timelines for Other Secular Markets:

Secular 1929 - 1949 Bear Market
Secular 1949 - 1966 Bull Market
Secular 1966 - 1982 Bear Market
Secular 1982 - 1999 Bull Market

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