Text | Bank Screws (Please obtain my authorization for reprinting, and indicate the author and source)
After World War II, the two rounds of bull and bear markets in U.S. stocks were reviewed
After World War II, U.S. stocks experienced three rounds of big bull and bear markets.
The first round was after World War II, when the economy recovered rapidly and ushered in the golden decade of the 60s of the 20th century.
But against the backdrop of rising interest rates in the 70s, there was a 10-year bear market in U.S. stocks.
The second round, starting from the early 80s of the 20th century, started with a price-to-earnings ratio of 8-9 times for U.S. stocks and lasted until 2000.
This is also the longest bull market in U.S. stocks since World War II.
But because of the relatively high valuation, coupled with the financial crisis in 2008, from 2000 to 2009, nearly 10 years later, the US stock market has been cut in half.
However, in the time of the financial crisis, there was once again a 5-star investment opportunity in the US stock market.
It is a good start for the next round of bull market, which is also the third round of bull market for U.S. stocks after World War II.
After the 2008 financial crisis, U.S. stocks gradually recovered
The 2008 financial crisis halved global stock markets.
The S&P 500 was at its 2009 low, only 42% of what it was in 2000.
Other markets also fell heavily during the financial crisis:
• Japan's Nikkei 225 index fell to its lowest point in the last 30 years.
• A-shares, the biggest drop in history.
In 2009, in order to stimulate the economy, various countries around the world launched stimulus policies.
U.S. stocks also launched the biggest stimulus package since the Great Depression in 1929.
It has successively launched several rounds of easing policies to release water for the market.
Stimulated by a large amount of capital, and the valuation of U.S. stocks in 2008-2009 also returned to the 5-star level.
U.S. stocks gradually recovered in 2010 and began to rise slowly.
The European debt crisis has had little impact on the recovery of U.S. stocks
From 2009 to 2012, the global market gradually stabilized and recovered.
In the middle, there was a European debt crisis.
In 2009, Greece declared its own fiscal deficit of 12% of GDP, well above the 3% ceiling set by the European Union.
Global rating agencies downgraded Greece's credit rating, causing Greek government bonds to plummet.
It also indirectly led to a round of decline in the European stock market.
The European debt crisis has dragged down the performance of several European stock markets.
In 2009-2012, the bear market was undervalued for a longer period of time.
However, the European debt crisis has had little impact on U.S. stocks. By 2012, the U.S. stock market gradually came out of the impact of the financial crisis.
Two factors driving higher valuations in U.S. equities
Throughout 2008-2012, for 4-5 years, the S&P 500 and Nasdaq 100 were mostly 4-5 stars.
Valuations are also one of the lowest in the past 30 years, and the bear market has been relatively long-lasting.
After 2013, U.S. stocks gradually returned to normal valuations.
The fundamentals of listed companies are also gradually returning to pre-financial crisis levels.
During the 2013-2016 period, U.S. stocks were undervalued and normally valued most of the time.
After 2017, two things have pushed the valuation of the U.S. stock market to further increase.
First, in 2017, the United States launched the largest tax cut plan in history.
We mentioned earlier that index points = earnings * valuation.
For listed companies, earnings = income - expenses.
One of the largest expenditures is, of course, the expenditure of taxes.
The tax reduction of listed companies means that the company's earnings increase under the same income.
It can be used to increase the amount of dividends or buybacks to shareholders.
The value of the stock market has also increased significantly, and the valuation center of U.S. stocks has increased.
Recuperation has always been a good way to rebuild after a crisis.
Of course, if there is a tax rate increase in the future, it will be the opposite, which will pull down the valuation of US stocks.
Second, from 2017 to 2020, the interest rate on U.S. Treasury bonds gradually declined.
At its lowest point in 2020, the yield on 10-year Treasuries was less than 1%.
From the early 80s of the 20th century, the interest rate of US stock bonds exceeded 10%, and fell to less than 1% in 2020.
This is also a 30-40 year cycle of interest rate declines for U.S. stocks.
Lower interest rates have also been significant in boosting stock market valuations.
Therefore, taking 2016 as the dividing line, it will be observed that the valuation of U.S. stocks after 2016 is significantly higher than that of the previous 10 years.
These two factors have propelled U.S. stocks out of a 10-year bull market from 2008 to the end of 2019.
summary
To sum up, the third round of the bull market in the U.S. stock market is divided into three stages.
• From 2008 to 2012, the financial crisis brought about a big plunge and a bear market that underestimated the opportunity.
• From 2013 to 2016, U.S. stocks gradually returned to the normal range.
• From 2016 to 2019, tax cuts and lower interest rates led to an increase in the valuation pivot of the stock market.
The book we explained "70 Years of U.S. Stocks", the data of the backtest is around 2019.
In fact, after 2019, there have been wonderful ups and downs in U.S. stocks.
If you are interested, you can introduce it separately after the screws.
U.S. stocks also have a bull and bear market, but the bull and bear market cycle is much longer than that of A-shares, and a round of bull and bear market even reaches 10-20 years.
U.S. stocks will also encounter irrational bubbles, such as the Nasdaq rising to 100 times in 2000.
There are also irrational panic crashes, such as the 2008 financial crisis.
Taking history as a mirror, we can know the rise and fall.
Understanding these histories can help us better invest in the future~
Author: Bank Screw (Please obtain my authorization for reprinting, and indicate the author and source)
PS: For those who are interested in index funds, welcome to read the "Index Fund Investment Guide" and "Ten Years of Financial Freedom for Regular Investment".