Here’s a Chart You Need to See: Examining the 1970’s Bear Market for Future Clues

It’s official, the stock market is in bear territory, which brings challenges along with new opportunities. To weather the inevitable compression of job and finance options due to Fed tightening, it’s important to ask yourself “Have we been here before?”

When searching for an historically relevant period in time that we can use as a reference for the future, the 1973-74 bear market is a good place to start.

The above weekly chart shows that the stock market does not go down in a straight smooth line but that the downward journey through a bear market is actually quite a bumpy ride. This is normal bear market behavior with declines and several short-term rallies lasting a month or two.

Affecting all the major stock markets in the world, particularly the United Kingdom, it was one of the worst stock market downturns since the Great Depression, the other being the financial crisis of 2007–2008. The crash came after the collapse of the Bretton Woods system over the previous two years, with the associated ‘Nixon Shock’ and United States dollar devaluation under the Smithsonian Agreement. It was compounded by the outbreak of the 1973 oil crisis in October of that year.

Looking at the start of this year, there are clear similarities between the 1974 and 2022 bear markets.

If the 1974 bear is any indication of what is expected, we should gear up for the possibility of another 30% downward pressure on the overall market before setting up a comeback, which could last well into 2024.