Market Analysis
The 1937-1941 Bear Market
The 1937-1941 bear market started in March 1937 and lasted for five years with the market losing around 50%. This was an exceptional long bear market which ended in April 1942.
Charts from stockcharts.com are used to analyze all of the market cycles that have occurred over the last hundred years. Analyzing the market cycles with charts gives stock investors a visual representation of how the stock market moves over time.
The Dow Industrial Average is used to analyze the 1937-1941 bear market and all market cycles prior to 1957 (The S&P 500 index was formed in 1957 and all market cycles from 1957 are analyzed using the S&P 500 index).
100 Year Market Chart
The following chart shows the 1937-1941 bear market on a 100-year chart with the Dow Industrial Average plotted as a monthly bar chart.
Chart 100yr: 1937-1941 Bear Market
Chart by stockcharts.com
As can be readily observed from the long-term 100-year market chart, the 1937-1941 bear market is just one of many bear markets that have occurred.
The 100-year market chart also shows a 240-month simple moving average which has spent most of the last hundred years trending upwards. This shows that over the long-term the market has broadly continued higher as the moving average followed the Dow Industrial Average higher.
20-year Market Chart
The following chart shows the 1937-1941 bear market on a 20-year chart with the Dow Industrial Average plotted as a monthly bar chart.
Chart 20yr: 1937-1941 Bear Market
Chart by stockcharts.com
A 12-month simple moving average is also plotted on the 20-year market chart. The 12-month moving average is a useful indicator used in Technical Analysis for highlighting market cycles.
As the 20-year market chart shows, the 12-month moving average broadly followed the 1937-1941 bear market lower, even though the moving average did slope upwards during 1939.
Most investors new to the stock market are under the impression that the stock market only moves in the direction of the current market cycle.
In reality, the stock market moves in cycles and alternates between bull markets (where stock prices broadly increase) and bear markets (where stock prices broadly decline).
Fortunately for investors, bull markets are usually longer than bear markets. This means that stock prices spend more time increasing in value than they do losing value.
Bull markets last anywhere from two years to around a decade, whereas bear markets are shorter and usually last a year or two and sometimes three.
7-year Market Chart
The 1937-1941 bear market is shown again with a shorter time-frame on a 7-year chart plotted as a weekly bar chart.
Chart 7yr: 1937-1941 Bear Market
Chart by stockcharts.com
The shorter time-frame provides more detail. As the chart shows, the 1937-1941 bear market started in March 1937 and lasted for five years. This was an exceptionally long bear market, but it did occur with exceptional circumstances.
The 1937-1941 bear market started as the Great Depression continued through the 1930s, but also the threat of war loomed as Nazi occupation spread across Europe. Then World War 2 began in Europe in September 1939.
The Dow Industrial Average lost around 45% during this bear market, but as the chart shows, the initial plunge in 1937 and early 1938 took the market almost down to the final level it reached in 1942.
Market Chart: Rallies and Pullbacks
The 1937-1941 bear market is shown again with a 7-year line chart and two moving average indicators.
Chart MA: 1937-1941 Bear Market
Chart by stockcharts.com
The above line chart for the Dow Industrial Average shows a 52-week (long-term) and a 12-week (short-term) simple moving average.
The 52-week moving average (purple line) followed the initial plunge, but then sloped upwards through 1938 before sloping back down.
The 12-week moving average (orange line) broadly identifies the rallies and pullbacks that occurred.
The Dow Industrial Average plunged in late 1937 and early 1938 to bottom in March 1938 (the 2nd RL on the chart - RL stands for Relative Low).
The market started a bear rally which peaked in October 1938 (3rd RH - Relative High). These rallies are commonly referred to as bear market rallies as they give investors a false impression that the bear market has bottomed and the next bull market started.
World War 2 started in September 1939 which coincides with the 4th RH and from here the Dow Industrial Average resumed its downward path with a sequence of sell off's and bear rallies until the market finally bottomed in April 1942.
The April 1942 end to the bear market is shortly after America joined the War due to the bombing of Pearl Harbor in December 1941. America's retaliation probably spurred the start of the 1942-1946 bull market.