Since January 2011, we have advocated against the claim that the Federal Reserve was responsible for the rise in the stock market. Our theory has always been based on the precedent of stock market data which can be traced to periods in American history when there was no central bank.
In February 2014, we compiled enough of the necessary stock market data to show that:
“The most important concept that should be taken away from all this data is that a central bank did not exist from 1836-1914. There was no way to ascribe the gains of the market to the Federal Reserve. All iterations of a central bank with the First Bank of the United States (1791-1811) and the Second Bank of the United States (1816-1836) did not have any effect on the data sets that we have provided from the period of 1836 to 1914. In order for the claim that the current market run is based on the monetary policies of the Federal Reserve, we’d need to be able to demonstrate that the stock market would have behaved differently without the existence of a Federal Reserve (February 17, 2014).”
In that same February 2014 posting, we listed the market percentage gains that were experienced when there was no central bank in place. We averaged the gains in the seven market cycles while having no Federal Reserve and showed that the average gain would have brought the Dow Jones Industrial Average to 17,500. However, as time has passed and the Dow has increased, we’ve shown what the next level the Dow would need to go to in order to exceed the next highest bull market (on a percentage basis). In November 2014, we said:
“If the Dow were to go to the extreme of rebounds with no Fed (1857-1864), then in theory the index could climb as high as 24,840 (November 2014).”
On December 18, 2017, the Dow Jones Industrial Average increased to the 24,840 level on an intraday basis. The gain from the 6,450 level is approximately +285.11%. We think that the stock market’s ability to rise to the current level has been more about confidence in the economy and less about actions taken by the Federal Reserve. Below we show the ranking of the current bull market to put the market action into perspective.
It has finally happened. In all the years of talk about the current market increase from the March 2009 low being induced by the actions of the Federal Reserve Bank, the market has finally exceeded the highest ranking bull market period when there was no central bank in the period from 1857-1864. Crossing this vaunted level is only as good as when it is done on a closing basis. Having said that, out of the top ten bull market recoveries, half occurred when there was no central banking system in place.
What is next? Of course we’re looking at you bull market of 1923 to 1929 with your gain of +338.58%. What would the Dow Jones Industrial Average look like if it were to achieve that level? The Dow would sit at 28,288.41. Keep in mind that exceeding the 1923 to 1929 would only add an additional +14% for the Dow Jones Industrial Average. The gains that we’re speaking of now are nothing compared to what has been accomplished since the 2009 low.
We need not be shocked at 28,288.41 on the Dow nor worry about it being a set up for a stock market crash like that of 1929. This is the nature of bull market recoveries as demonstrated throughout history. Our February 12, 2009 article should prepare our readers for what to expect and when as we pointed out at that time that market declines of –40% or more should be every indication that a recovery of +50% to +100% should be expected, based on the available data at the time. A month later, the market achieved the lows and hasn’t looked back since.