Secular Stock Markets Explained

We’ve been discussing the 100 year charts that look at the secular history of Bull and Bear markets, including Adjusting Stock Prices for Inflation. This has been a favorite of mine for some time, and I highlighted it in the technical segment (part II) of the Cult of the Bear.

Ed Easterling was kind enough to let us run his chart, and I find it to be the very best of these longterm secular views: He overlays the Bull and Bear periods with trailing P/E — this fits in very nicely with our contracting P/E thesis.

Dow Chart with P/E, 105 Years
click for larger chart

Source: Crestmont Research


Incidentally, in terms of what readers purchased via links at this site, Ed’s book, Understanding Secular Stock Market Cycles, is your most popular buy, just edging out Barton Bigg’s Hedgehogging this quarter.



Stock Cycles Explained
Ed Easterling
Crestmont Research,
2006 Secular Explained.pdf

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What's been said:

Discussions found on the web:
  1. Ned commented on Jun 13

    Can we go a bit deeper into the data here? What was the direction of the E in these periods? My guess would be down and then it is a bit of a duh. Stocks go up when earnings improve but go down when they don’t. What am I missing?

  2. Mark commented on Jun 13


    Go to the Crestmont site and read the “Financial Physics” paper. Not as simple as what you are concluding.

  3. Ned commented on Jun 13

    Thanks Mark. EPS seems to be of lower value in times of rising inflation, which makes sense to me. Amount of stuff you can buy is going down because the price of stuff is going up. Again, please correct me if I oversimplify. I just get a tad annoyed with folks who talk about expanding and contracting P/E multiples without looking for the why behind these important moves. Perhaps there is also a psychological component as public mood moves in large long-term? swings (I am not a believer in Elliot Wave, but the cultural psychological analysis was always the most fun for me, but no way to trade the “short skirt” phenom, etc.)

  4. Jason Wood commented on Jun 13


    Wouldn’t a prolonged secular bear market (with periods of wild fluctuations up and down) be coincident with a much higher VIX?

  5. Bastiat commented on Jun 13

    Barry, et al,

    Are they any studies that detail what other asset classes do well during the secular Bear periods? (Please don’t say gold.)

  6. Harry commented on Jun 13

    What about natural resource stocks witk p/e around 10. Are they a buy?

  7. Alex Khenkin commented on Jun 13

    It really does take reading the whole of Easterling’s book to get the Big Picture clear (bad pun intended). He goes into so much detail I sometimes felt like a third-grader; the book is really written like a textbook. Very useful.
    Small Investor Chronicles

  8. MAS commented on Jun 13

    I bought the Easterling book via the link on the right column. It made me wiser and wishing I had enough money to be part of a hedge fund.

  9. Ed Easterling commented on Jun 14

    Mark, thank for your comment to Ned…that will help to address his concerns.

    Ned, as to your comment about the causes behind the overall P/E cycle, please consider reading Unexpected Returns or at least peruse the website (the book goes into a lot more detail about it).

    Jason, regarding volatility and secular markets, please consider reading “The Calm Before The Storm” near the bottom of the Stock Market section at

    Bastiat and Harry, sorry, I haven’t looked into other assets classes, natural resources, or commodities…

    Alex, sure didn’t intend for it make you feel that way; and “textbook”…hopefully it was an easier read and had a more colorful tone than a textbook! Glad it was useful…

    MAS, the evolution described in chapter 12 has accelerated and there are dozens or more registered funds that use hedge-fund-like investment approaches—Morningstar has new categories related to many of them…

    I welcome comments and perspectives about the work at and in Unexpected Returns…it helps to further drive the research.

    Thanks to all for your comments and interest in the work.

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