Click to enlarge

Source: J.P. Morgan

Category: Index/ETFs

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “Stock Market Since 1900”

  1. dctodd27 says:

    What is the point JPM is trying to make? That we are slightly less overvalued than the 1929 peak, and slightly more overvalued than the 1932 trough? Why not include more useful data points than trailing 12-month PE, ie dividend yield, price to sales, Shiller PE? When most of the data points, even at extremes, all look like each other then what’s the use?

    • It is one chart from 75 pages of such charts — it is data, subject to your own interpretation.

      Perhaps the more zen question is: What do you make of this chart?

      • Willy2 says:

        Are there more interesting charts in those 75 pages amd which are worth posting ?

      • dctodd27 says:

        I think JPM is trying to portray the market as about fairly valued, which I have a some trouble agreeing with.

      • Its a pretty standard chart, and shows a century of history — so even if there was a bias inherent in their measurements, you can still use it to see how things were priced relatively at tops and bottoms.

        You are reaching desperately to maker a point that simply is not there

      • dctodd27 says:

        Barry, you can call it desperation if you want, but are we supposed to assume JPM has no agenda in producing that little flipbook? There are clearly better valuation indicators out there, but they pick the one that shows the goldilocks “not too hot, not too cold” scenario. What does it tell you?

      • rd says:

        We are either on the cusp of a new great order fo magnitude bull market or we will grind through another drop before starting that.

        I am just not convinced that we have taken out enough garbage and laundry yet for the big bull to commence. The financial leadership is still largely in place from the last crisis and I think the only lesson they have learned is that they are still firmly in charge and can still do business as they would like to be usual.

        I also wouldn’t count 1974 as the bottom of the previous secular bull. Inflation ruled the late 1970s, the inflation-adjusted bottom, the Shiller CAPE bottom, and the dividend yield peak were all in 1982. That period really ground through from 1966 to 1982. If 1974 had been the real bottom, Reagan would never have been elected.

      • Derektheunder says:

        The biggest impression I get from this chart is that JPM would like its viewers to believe that we are a year or two overdue for an epic stock run. The 1974 point selection is a dead giveaway.

      • I read that somewhat differently — the next turn is anywhere from 1-6 years away

      • Derektheunder says:

        That’s how I would read it as well if their horizontal sec. bear line extended to 1982 instead of 1974.

      • wisconjon says:

        The pattern I see shows that when PE gets down to 10, then we’re on the way to a bull run. Until then, we will need to wait this flatline out…

  2. mpetrosian says:

    Aaah, the illusion of linear time.

  3. Willy2 says:

    The chart is (a bit) misleading. One only has to read the explanation below the chart to find out why. (“the devil is in the details”). JPM uses a 4 quarter trailing P/E. And then everyone can pick and choose what ever fits his/her narrative. E.g. in 1929 this P/E was at ~17 and at the bottom that P/E had only shrunk to ~14.

    I know that at the stockmarket bottom in 1932 the “normal” P/E was at ~ 6 to 7 and bond yields were slightly higher. Such a situation existed at the stockmarket bottom in 1981/1982.

    • Willy2 says:


      - E.g. in 1929 JPM’s P/E was at ~ 17 and at the bottom of the stockmarket in late 1932 JPM’s P/E had only shrunk to ~14. In that regard the 4 quarter trailing P/E – IMO – understates (in both directions) the swing in earnings from 1924 up to 1929 and from 1929 up to early 1933.
      - Even JPM now acknowledges that stocks were VERY expensive in the year 2000. What did JPM say in 2000 ? “Stocks are cheap” ?
      - The chart suggests the stockmarket will go sideways for the next few years until it hits a P/E of ~10 (look at the chart and compare 2000-2013 with 1900-1924, 1937-1948 & 1966-1974). And here we – IMO – hit upon the REAL message JPM wants to send into the world:
      1. P/E ratios will continue to contract.
      2. But hey, dont’worry, the stockmarket will move sideways for a number of years until the (JPM) P/E hits ~10.
      3. Buy stocks, be happy.

      There’s however one problem. I know that from 1966 up to 1981, P/E ratios – on average – continued to contract, even after the stockmarket bottom of 1974. In the very early 1980s the P/E ratio (Not JPM’s ratio) bottomed at ~ 6. By suggesting 1974 was the bottom and not the very early 1980s, JPM wants – IMO – to hide that P/E ratios can (and – IMO – WILL) go MUCH lower, lower than the ~10 they’re promoting here.

      I don’t trust JPM anymore. Recently one JPM investment advisor was shocked when she learned that some information suggested China was contracting at a ~4% rate and was disappointed that Japan contracted 3%.
      In spite of that she suggested that both China & Japan would continue to grow at ~6% in the next months(/quarters ??).

  4. CSF says:

    This chart tells me: 1) The Fed taper is noise. 2) The long cycle dominates. 3) Secular bears often begin when a major bubble collapses, but secular bulls can begin from any market condition. 4) I have no idea where markets will be next year. 5) Markets will likely be higher 20 years from now.

  5. zell says:

    Zen answer: Nothing.

  6. cakehydrant says:

    “Past performance does not guarantee future results.” On the other hand, its all we have to go by.

  7. grandwazoo says:

    What do you make of this chart?

    every time there is a plateau it goes up big time and guess where we are now in plateau city.

  8. Tamu82 says:

    Looks to me like JPM is suggesting one of two things:
    1. A breakout to the upside is coming
    2. The P/E is too high for a breakout compared to past level periods like 2000-2013 so 1929 is coming (?)

    Just another chart . . .

  9. SecondLook says:

    Stepping back (symbolically), and looking at the whole chart there is, to me, one dramatic takeaway: The incredible disparity in market returns between the two halves of the century.

    Take out the storm and angst of the decade from 1925 to 1935, and the market is, in aggregate, sluggishly positive over 50 years.

    From 1950 on, it’s a wonder of a step ladder: Roughly, two decades rise, one decade flat, another two decades up.

    Try to look at it from the very long term perspective of institutional investors. Since the end of WW2, the stock market has been a beauty.

    But the question is, are we recapitulating the second half of the 20th century, or the first, or, something else entirely…

  10. darkstar says:

    What amazes me about this chart is that, even with all the excitement of the ’20s and the destruction of the ’30s, the market was essentially flat for the first 45 years of the 20th century! So it’s entirely in the realm of possibility that the S&P will be 1700 or so 30 years from now (here’s hoping we can skip the 2 world wars). We’ve got 15 years under our belts already! I’m not expecting it to happen – but I wouldn’t be surprised by it either, as NOBODY expects it to happen (except maybe John Hussman?)

    Then there was the huge boom after WWII – that makes sense, as half the world had to be rebuilt from scratch. And the next 15 years or so of 0 return also make sense – damn those were tough times. But what explains the even bigger boom from 1980 to 2000? Inflation?

  11. Lamont says:

    The P/E on trailing GAAP earnings is 19.1. Where is this 16.3 coming from?

  12. perpetual_neophyte says:

    This has been one of my favorite charts of theirs for years. I am with Barry – it’s less about what the chart is “trying to show” and more about what you take away from it.

    One of the simplest takeaways? The long-cycle sideways markets have all ended with PEs lower than their peaks. ;)

    It may or may not be fun or worthwhile to notice that the most recent low in PE was – as a percentage of its previous peak – about where the ’48 and ’74 troughs were.

  13. mrflash818 says:

    Historically, seems times of best US feelings of being prosperous may match when the P/E was low(est).

  14. gkm says:

    Saw this post ( and thought I’d note that what is most interesting is what is missing.

    Most important for this chart: they don’t show the P/E’s from October or March of 2009. Nor do they show it from October 2002. Why might that be? That’s all you need to take away from this chart.


    BR: That is a different chart — this one.

    You should be aware that you should post this on the chart, not the reads. (I’ll move it over, but int he future it will be unceremoniously deleted.)