The 17.5 Year Cycle
On the floor or the New York Stock Exchange these days you may hear traders discuss the 17.6 year cycle. The idea has reference to an old adage that the market experiences short-term cycles as well as long-term secular cycles.
If, for example, in September 1929, with the Dow around 350, you look backward 17.6 years, the market experienced incredible prosperity. On the other hand, if you look from September 1929 forward 17.6 years, the markets and economies of the world experienced intense uncertainty and the Dow fell until sometime around May of 1947.
In May 1947, the war was over, the Dow was around 170 and investors made money in nearly anything they bought until January 1965. In January 1965, with the Dow around 900, the market and the economy struggled. Nearly anything an investor bought experienced extreme volatility and ultimately not much gain. With the economy languishing, political leaders passed stimulus packages, re-ordered taxes, created jobs programs and spent billions of dollars in order to stimulate the economy—all without success until July 1982.
In July of 1982, President Regan’s tax reduction and spending limitation policies had taken effect and new life was given to business enterprise and capitalism. In fact, from 1982 through the end of the century, nearly anything an investor bought went up in value—that is until sometime around February 2000.
From early 2000 to today, the market has crashed, recovered and crashed again. Nearly anything an investor has bought has struggled to increase in value and in most cases has decreased in value. If the 17.6 year cycle theory is accurate, this could perhaps continue to be the case until 2017—wow, could this possibly be true?
Economic theorists have long taught the difference between a long-term secular economic cycle and a short-term cyclical economic cycle. Whether the long-term cycle is exactly 17.6 years or not probably doesn’t matter very much. The key for investors is in determining how best to invest and manage the challenges of different economic environments.
Investors should maintain perspective on the markets and their long-term investing goals. Markets will go up and markets will go down. We can count on the markets creating the most pain possible for the largest number of people. Successful investors are long-term investors focused on objectives rather than short-term profits. The volatility of market swings are more comfortable for investors with well founded long-term objectives.
In the short-run, the 17.6 year cycle is probably as good a forecast as any.
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