How Long Will the Dow Need to Reach a New Record High? Maybe Far Longer Than You Think

America's most-watched index has spent years below record highs, even in bull markets.

Apr 22, 2014 at 1:15PM

The Dow Jones Industrial Average (DJINDICES:^DJI) closed out the last day of 2013 at a level of 16,576.66 points. Since then, the index has come so very near a new all-time high, but after reaching 16,573 points exactly on April 2 it has only frustrated investors who had largely grown used to long stretches of uninterrupted growth. The blue-chip index today is again moving higher, and moving into early afternoon it appears that there's barely a fifth of a percentage point of gains left between the Dow and a new record:

^DJI Chart

^DJI data by YCharts.

To date, the Dow has gone 75 trading days without reaching a new record, after pushing the bar higher on many trading days last year. This period of uncertainty and a wavering Dow is far from unusual, even for a secular bull market -- and it remains debatable as to whether the Dow is truly in a secular bull market. In fact, every major long-term bullish period, in which the Dow's all-time high continues to nudge upward dozens or even hundreds of times, has experienced long stretches between one new record and the next. We can go all the way back to the Dow's very first bull market, which ran from 1896 to 1899, to see how this has played out.

Dow

This bull market peaked several times before meandering about for several months at a stretch. Its first top, in mid-November 1896, wasn't surpassed until mid-June 1897, with 163 trading days passing from one peak to the next. The Dow then surged into the fall before topping out in mid-September 1897, after which it did not set a fresh record until August 1898.

The Dow suffered a generational bear market from there that would stretch to 1921, when the Roaring '20s produced the greatest uninterrupted stretch of growth American markets have ever seen. Except that it was hardly uninterrupted:

Dow

The Dow topped out in fall 1922 and only resumed its growth for a few brief weeks the following February, after which it wandered below its high for well over a year. The first stretch of non-record-breaking closes ran for 84 trading sessions, but the second dragged on for 355 trading sessions, which is (when holidays and weekends are taken into account) less time than it took to build the Empire State Building. There were several other interminable periods of flat trading during the Roaring '20s as well:

Prior Record-Breaking Day

Next Record-Breaking Day

Total Trading Days Elapsed

Oct. 16, 1922

Feb. 16, 1923

84

April 20, 1923

Aug. 20, 1924

355

Feb. 11, 1926

Aug. 3, 1926

118

Aug. 9, 1926

April 21, 1927

177

Sources: St. Louis Fed and author's calculations.

After the Dow peaked in 1929, it took a grinding 25 years -- still the longest stretch from one record to the next in the Dow's history -- before it finally broke through to new all-time highs in 1954. This extended bull market also had its fair share of long non-record-breaking stretches, which included a period of 95 trading days in the fall and winter of 1959, a stretch of 318 trading days from the beginning of 1960 to the spring of 1961, and 103 disappointing trading days in the summer and fall of 1965. Despite these periods of mediocrity, the Dow still managed to best its 1929 record by 161% before finally topping out in the middle of President Lyndon Johnson's second term.

The baby boomer bull market of the 1980s and 1990s was also pockmarked by the same sort of mediocre stretches of trading that plagued earlier eras. Investor, analyst, and financial writer Barry Ritholtz tallied up a total of 492 new all-time highs in the Dow from 1983 to 1999, but during this period the index also spent nearly 1,200 days dawdling about in extended stretches of mediocrity, not setting any new records:

Prior Record-Breaking Day

Next Record-Breaking Day

Total Trading Days Elapsed

Nov. 29, 1983

Jan. 29, 1985

295

Jul. 2, 1986

Nov. 25, 1986

105

Jan. 2, 1990

May 14, 1990

92

June 1, 1992

Feb. 4, 1993

173

Jan. 31, 1994

Feb. 23, 1995

269

Aug. 6, 1997

Feb. 10, 1998

131

Jul. 16, 1999

Dec. 3, 1999

100

Sources: St. Louis Fed and author's calculations.

Keep in mind that all of these periods of weakness occurred during periods popularly considered bull markets -- the bear-market drops of 1987 and 1990 are ignored here. In every case, these stretches have been longer than the one the Dow finds itself in and may soon break free from. Flat months are still far better than big drops, and this has hardly been the only time that the Dow has dawdled below its old records, even in bull markets. The important question to ask isn't whether new records will be reached, as this seems all but certain any day now, but how many new records will be set before the Dow finally, inevitably reverses itself.

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