Why the Dow Could Set New Record Highs for Years to Come

When the Dow Jones Industrials (DJINDICES: ^DJI  ) set a new record high of 15,680 on Tuesday, it marked the 32nd time since March that the Dow had eclipsed its previous high-water mark. That prevalence of new records has led some to conclude that the aging bull market has almost run its course and that investors need to prepare for a substantial pullback.

Yet while corrections are inevitable, a look at stock market history shows that as impressive as the Dow's surge has been in recent years, the Dow could have much further to run. Let's take a look at the past two bull markets to see how frequently the Dow set new record highs and how long those record runs lasted.


Source: Marcy Hargan, Flickr.

The aftermath of the 1987 crash
After the bull-market run of the 1980s, the 1987 crash brought back memories of the Great Depression. Many investors became convinced that the impressive gains the market had seen since the inflationary recession of the late 1970s and early 1980s would evaporate in a Depression-like swoon that could last a decade.

Yet within less than two years, the Dow returned to record levels, setting 24 new highs in the next year. The first Gulf War put a relatively quick end to that brief post-crash run for the Dow. But it also set the stage for one of the most impressive bull markets in stock market history.

The roaring 1990s
Once the Iraqi invasion of Kuwait came to an abrupt end, stocks quickly resumed their upward track. By April 1991, the Dow once again set new highs, topping the 3,000 level for the first time in history. Yet over the following nine years, the Dow set 300 new closing record highs as it nearly quadrupled, reaching 11,723 before topping out in early 2000 at the beginning of what would become the tech bust.

On many occasions during that time-span, pessimistic investors believed that the bull market would come to an abrupt halt. Episodes like the 1997 Asian financial crisis and the resulting "mini-crash" caused unprecedented volatility in terms of Dow points, but each setback was followed in short order with new highs.

The tech recovery and the housing boom
The 2000-2002 bear market cut more than a third off the Dow's value from its 2000 high to its 2002 low. But within four years, the Dow had recovered to new record levels. In the year from October 2006 to October 2007, the Dow hit new highs 55 separate times.

For investors today, it seems like the current bull market has been going on forever. But in the historical context, the Dow's 32 highs over the past eight months are insignificant compared to what previous bull markets were able to produce. Although that doesn't give you any guarantee that the market didn't set what will turn out to be its last all-time high for this particular bull market on Tuesday, it should cause you not to be too surprised if the Dow keeps setting new record highs well into the future.

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