How Now, Dow Jones?
By David Poole

David A. Poole, now retired and consulting from Chappaqua, NY, but formerly chief economist at mutual fund manager Van Eck Global, uses the Dow Jones Industrial Average to follow the seesaw movements of the stock market since the Dow's inception in 1896, searching for repeating patterns both large and small. The biggest patterns of all seem among the most regularly recurring.

As you can see from the tables Poole has supplied, the market has followed, at least since 1899, a strikingly regular pattern of large gains in discrete market eras running 15 to 20 years, separated by similarly long periods in which the market fluctuated but ended significantly down when the next big upswing started. There is a lesser series of trends-within-the-trend that last roughly four or five years.

Poole himself ventures little in the way of explanation. One could postulate the effects of the periodic bank crises that shook the country before WWI, then peace and prosperity in the Twenties, followed by Depression and WWII, in turn followed by 1950s expansion, Vietnam and inflation and Oil Crisis, Reagan era and Greenspan era. But why should historical intervals have such apparent regularity? Or could it be the market has long cycles of optimism and pessimism of its own?

Poole notes that the Dow in this year's first quarter fell topretty much where it was a year before, which is a drastic change from the rises in the preceding several years, and short-term indicators he also follows have been getting progressively more bearish all the while. Will history repeat? Or have the last 104 years just been one of those statistical coincidences? Hope for the latter: If the cycles do repeat we're on the cusp of a relatively lousy 15 to 20 investment years, as measured by the venerable old Dow.