The bull market started 40 years ago this week. I say “the” bull market, not “a” bull market, because even though we’ve had several bear-market drops of more than 20%—the 1987 crash, dot-com implosion, post-9/11 drop, 2008 financial crisis and Covid—this was the Big One, a secular, interest-rate-plummeting, multiple-expanding, earnings-exploding market bonanza that ushered in the modern digital era.
On Aug. 12, 1982, the Dow Jones Industrial Average bottomed at 776.91, around where it was in January 1964, though it had bounced off 1000 five times in the interim. It peaked on Jan. 4, 2020, at 36800, a gain of 47 times, or a 9.6% annual rate, until inflation slew the super bull. I’m really going to miss it.
Were there any clues that a rip-roaring bull market was starting? In 1982 the federal-funds rate was 10%, down from a peak of 19% a year earlier, and it began a long, steady drop until hitting zero in December 2008. It was still zero this March. Not anymore. The price-earnings multiple in 1982 was 7.7.
The biggest clue was that most investors in 1982 were either complacent or had sworn off owning stocks after years of awful returns. Reminder: Bear markets are no fun. Stocks often go up in the morning and down in the afternoon. And there are bull traps—stocks rally for months, enticing gullible momentum investors, only to be followed by gut-wrenching drops.
The bull born in 1982 got some help. Investors started to seek higher returns than bonds. President Reagan cut taxes, especially on capital gains, driving capital formation. Lower interest rates meant a lower cost of exploring new ideas. And explore we did.
It is no coincidence that the IBM PC was introduced exactly a year earlier, with its whopping 16 kilobytes of memory standard.
