What drives a bull market? How does it get started, and how does it end? What happens to stock fundamentals during these bullish times? There are no ironclad rules that can tell you when a bull market begins and ends, but there are some similarities that all bull markets share. Understanding the way bull markets work can help you become a better and more informed investor -- and if you're the inquisitive sort, you're also bound to find some interesting parallels between otherwise unrelated market cycles. History may not repeat, but it often rhymes.
Here, in the second of a three-part series, you'll find an overview of some of the most notable Depression-era and postwar bull markets in the history of the Dow Jones Industrial Average. Each bull market overview includes some basic background data, some of the market's major fundamental changes during those periods, and a brief description of the economic, social, technological, financial, and political forces at work. When you've finished reading, don't forget to check out the other parts of this series, as well as the companion series to this one that highlights the Dow's many bear markets.
1932-1937: Roosevelt's rebound
- Began (starting price): July 8, 1932 (41.22)
- Ended (final price): March 10, 1937 (194.4)
- Number of trading days: 1,161
- Total percentage gain and average gain per trading day: 372%, 0.32% per day
- Volatility (i.e., average daily price change): 1.27%
- CAPE, initial and final: 5.8 to 22 (278% increase)
This rebound began less than a week after future President Franklin D. Roosevelt's acceptance speech at the Democratic nominating convention in 1932. It was both incredibly powerful and incredibly volatile, driven in part by the Roosevelt administration's "bold, persistent experimentation" with both regulation and economic stimulus. It was also marred by two corrections strong enough to be termed bear markets in their own right: a 37% decline from September 1932 to February 1933 as investors awaited the Roosevelt presidency and a 22% decline from February through July of 1934.
1938-1939: Roosevelt's second rebound
- Began (starting price): March 31, 1938 (98.95)
- Ended (final price): Nov. 9, 1938 (158.08)
- Number of trading days: 154
- Total percentage gain and average gain per trading day: 60%, 0.39% per day
- Volatility: 1.32%
- CAPE, initial and final: 11.8 to 16.1 (37% increase)
The Dow shrugged off war worries and made a modest recovery from a 1937 recession within the Great Depression period. Industrial output and factory employment both increased as the government resumed its deficit spending, which it had temporarily interrupted during the bear market preceding this rebound.
1939: Prewar bounce
- Began (starting price): April 11, 1939 (123.75)
- Ended (final price): Sept. 12, 1939 (155.92)
- Number of trading days: 108
- Total percentage gain and average gain per trading day: 26%, 0.24% per day
- Volatility: 1.01%
- CAPE, initial and final: 13.9 to 16.5 (18% increase)
Most of the gains in this baby bull took place during its final week as the Dow rose from a 9% gain to its final 26% gain in the span of six trading days. This came in response to the German blitz of Poland, which triggered war-bride optimism toward industrial stocks similar to what had been seen during World War I.
1942-1946: World War II boom
- Began (starting price): April 28, 1942 (92.92)
- Ended (final price): May 29, 1946 (212.5)
- Number of trading days: 1,022
- Total percentage gain and average gain per trading day: 129%, 0.13% per day
- Volatility (average daily price change): 0.49%
- CAPE, initial and final: 8.5 to 15.8 (85% increase)
America's entry into World War II produced the most comprehensive industrial shift in history. American automakers were conscripted to build a staggering amount of war machines and materiel. Steelmakers and shipbuilders were kept going at maximum capacity. The singular focus on war production (and the conscription of millions of America's young men) brought unemployment down to negligible levels. U.S. debt to GDP reached its highest point in history as the government engaged in the largest stimulus program ever seen. There weren't a lot of investors, but those who remained were far more interested in buying, despite a 27% reduction in real corporate earnings as a consequence of widespread federal contracts, mandates, and business restrictions.
1949-1956: Postwar boom
- Began (starting price): June 13, 1949 (161.6)
- Ended (final price): April 6, 1956 (521.05)
- Number of trading days: 1,708
- Total percentage gain and average gain per trading day: 222%, 0.13% per day
- Volatility: 0.48%
- CAPE, initial and final: 9.1 to 19.4 (114% increase)
A generation's distrust of the stock market finally melted away during this period of dramatic economic expansion. The devastated European continent provided little competition, but it offered great export potential for American industrial concerns. The baby boom was kicking into full gear as the Greatest Generation formed families and entered their prime earning years. The consumer economy that took root in the Roaring '20s reached new heights as a recalibrated manufacturing sector cranked out cars and gizmos, rather than tanks and aircraft.
1957-1961: Return of the retail investor
- Began (and starting price): Oct. 22, 1957 (419.79)
- Ended (and final price): Nov. 15, 1961 (734.34)
- Number of trading days: 1,025
- Total percentage gain and average gain per trading day: 75%, 0.07% per day
- Volatility: 0.51%
- CAPE, initial and final: 13.7 to 21.9 (59% increase)
A severely weakened investment industry began its earnest recovery in the latter half of the 1950s. Over the course of this decade, employment in the securities industry doubled, investing was again heavily touted in public advertisements, and an estimated 10 million new investors rushed into the market. By the end of this bull market, $1,000 invested in U.S. Steel (NYSE:X) in 1949 had grown to $7,000, and the same amount invested at the same time in IBM (NYSE:IBM) had grown to $26,300. The massive National Interstate and Defense Highways Act became law in 1956, initiating the radical restructure of middle-class American life around the suburbs. In many ways, this was a continuation of the previous bull market, with many of the same economic forces at work.
1962-1966: A New Frontier for mutual funds
- Began (starting price): June 26, 1962 (535.76)
- Ended (final price): Feb. 9, 1966 (995.15)
- Number of trading days: 914
- Total percentage gain and average gain per trading day: 86%, 0.09% per day
- Volatility: 0.41%
- CAPE, initial and final: 17.1 to 23.7 (38% increase)
Like the Eisenhower bull market, this bull market continued the postwar strength. Begun during President John F. Kennedy's term, it continued growing after his assassination on the back of tax cuts and the rapid expansion of the mutual-fund industry, which grew to $35 billion during this period from just $1 billion after the war. Mainframe computing companies gained prominence during this period, planting the seeds for the first computing bubble. Warren Buffett gained control of Berkshire Hathaway (NYSE:BRK.B) during this period and achieved spectacular growth at its helm during the secular bear market that began after the bull run ended.
Putting it all together
Investors entered this period with fear and ended it in a state of rapturous bullishness. The most destructive war in world history reshaped the global map of power. America's manufacturing infrastructure reached its peak during this period, but few could have expected such an outcome in 1932. The public's attitude toward the stock market made a complete turnaround, which helped to create the modern securities and investing industries.
Want to learn more? Read about the chaotic bear markets that shook the Great Depression era and the mild corrections of the postwar period. Or continue to the final part of the bull market series to read about the growth that has brought us to the present day. You'll find the links below.
Want to learn more about market cycles? You can find the rest of the series here:
- An Illustrated Guide to Bull and Bear Markets
- What Is a Bull Market?
- Bull Markets in Modern Times
- What Is a Bear Market?
- Recession, War, and Bear Markets
- Bear Markets in Modern Times
- The Complete Illustrated Guide to Secular Market Cycles
AUTHOR'S NOTE: the cyclically adjusted P/E referenced throughout is compiled by Yale economist Robert Shiller from a historical S&P 500 composite. The Dow is used in place of this composite because it offers precise daily closing dates and prices, rather than the monthly results used in Shiller's calculations. The difference between these two indexes from the Dow's creation in 1896, on an inflation-adjusted basis, is less than 3%. CAPE numbers are from the nearest month to a given bull market's beginning and end.