Stock Market Follows Multiyear Price Cycles (January 1871 - Present) - Stock Prices are Well Above Long-term Trendline

You can use the chart below of the S&P 500 inflation-adjusted (real) monthly closing prices (log 10 scale) as a visual guide to analyze the future direction of stock prices. The chart shows five major completed cycles (upside and downside) from January 1871 to the present. The price data used in the chart are derived from S&P 500 monthly price data from Yale University economist Robert Shiller.

Currently, stocks are in the sixth cycle and are at or near all-time highs placing them well above the long-term trendline.

The blue line is the long-term upside trendline that was fitted using a simple linear regression model.

The chart clearly shows the volatility around the long-term trendline. Note the completed price cycles from 1877 - 1929, 1929 - 1949, 1949 - 1982, 1982 - 2001 and 2001 to the present.

The five major cycles are complex, making the overall pattern of prices quite volatile over long periods. Each of the major cycles is defined by a multi-year upside and a multi-year downside. There are minor cycles with well defined price upsides and downsides within each of the five major cycles.

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