Selected Readings

Seasons and Cycles of the Stock Market

chart: 10-Year Rolling Stock Market Return

Although the weather can seem fairly random from day to day, the weekly and monthly patterns are driven by the overriding impact of the seasons. Likewise, the stock market has long-term “secular” cycles driven by the fundamentals of finance and short-term “cyclical” cycles within these secular cycles. Because the market movements often appear random, conventional wisdom assumes a random walk for the market. Yet conventional wisdom too often includes shortcuts that create blinders to insight. Whether you invest or trade, an understanding of the cycles and their implications can be invaluable toward financial success. Secular Cycles Secular stock market cycles are extended periods of above-average returns (secular bull markets) and below-average returns (secular bear markets). Just like seasons of the weather, these secular cycles are …   Continue reading »

Decades, Not Centuries …

Figure 9-3 Frequency of 10-Year Returns

Some people will identify with the long-term view; others will be curious to see the effect that the secular cycles have on their own investment horizons. Ten years is generally considered long enough to smooth the yearly ups and downs in the market. Many people expect that the cumulative return over ten-year periods will begin to concentrate near the long-term average return of 10%. There have been 101 rolling ten-year periods since 1900, covering more than a century of stock market history and numerous secular stock market cycles. Many of the ten-year periods include years from both secular bulls and secular bears, while others are exclusively within an individual secular cycle. The result is not a muted or random profile of returns—the secular cycles have …   Continue reading »

Financial Market and Economic Research

Crestmont Research

Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The primary focus of the research is concentrated on the drivers and characteristics of secular stock market cycles, the impact of inflation and interest rates on the stock and bond markets, and the conceptual approach toward investment strategy applicable to the current market environment. The intention of the research and its publication on this site is to present rational perspectives based upon a diligent analysis of historical data. Through organizing the data logically, information is created. Through understanding and developing perspectives on the information, knowledge is generated. With knowledge, one can then start to make informed decisions. Crestmont’s research is intended to be observation-based rather than prediction-oriented. …   Continue reading »

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