May 2010 Stock Market Update

100 Year Dow Chart with 25-Year Moving Average

Dow 25-Year Moving Average

Above is a very long-term chart of the Dow, including the 25-year moving average (click chart to expand); it uses this past month for this year's close. It shows that the market rarely falls very far below its 25-year moving average. When this graph was originally posted, I noted that the one big exception to the rule was the crash that preceeded the Great Depression.

April, Year-To-Date & Recovery-To-Date Review

In early March 2009, I posted Dow At 25-Year Moving Average. The Dow continued lower for several more days before bottoming at 6547 on March 9 -- very near the 25-year moving average at the time. Since then, the Dow has rallied over 4400 points. If we treat the April 30 close of 11009 as the 2010 close, the moving average is now at 7306. (See the chart above. Click to expand.)

April was still another good month; the market was up about 150 points (1.4%). Year-to-date the Dow is up 581 points, 5.6%.

In total, this bull market is now up over 68% in a little less than 14 months. For reference purposes, the largest bear market rally following the 1929 crash lasted about 5 months, during which the Dow rose approximately 50%. Given that, it would not be unreasonable to assume that we are "home free." However, believe it or not, it's still possible that this will ultimately prove to be "just" an extended bear market rally. (For a more detailed discussion of bear market rallies following the 1929 crash, see The 1929-1932 Stock Market Crash Revisited).

The Next 10 Years

My stock market projection model projects 10-year returns in the neighborhood of 5.5% as of the beginning of 2010. Market increases since then have further reduced future anticipated returns. As a result, I am concerned that long-term returns from current levels are likely to be below average.

Related Reading:

Next Monthly Update
10-Year Stock Market Projection shows how expected returns have changed over the last 10 years.
Projecting Stock Market Returns introduces the projection methodology.
Dow Yearly Returns since 1929 (bar graph)
What was the Dow rate of return for the last 5, 10, 20 years?
What has the range of returns (minimum & maximum) been for 1, 5, 10, 20-year periods?
Who's Afraid of a Sideways Market?: Interesting perspective on long flat periods from Morningstar.

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Last modified: 6/4/2010