My colleagues recently released Morningstar’s quarterly Market Observer report. It’s a tour de force, with sharp analysis of the factors that have driven market performance and given shape to key macro trends. Best of all, it’s studded with lots of excellent charts, like this beauty:
What are you looking at? It’s the arc of US stock market history over the past century, expansions in blue, downturns in magenta, recoveries in aquamarine.
Expansions are defined as the period after the date the market reattained a previous high; downturns as the period that saw a drawdown of 20% or more from the prior high; and recoveries as the period between the market’s previous low and the date it reattained its old high. They’re labeled to indicate duration (all periods), cumulative return (expansions and declines only), and annual return (expansions only).
Not only is the chart an arresting visual, it also does a pretty good job of dispelling some myths and misconceptions about stocks’ recent and longer-term performance. Here’s a short list of what jumped out to me.
Myth 1: This Rally Has Been Unusually Strong
Counting the current one, there have been 11 expansions (defined as the period after which the market reattains a previous high) since 1926.
The average expansion prior to this one lasted 69 months (median 56 months), the longest more than a dozen years (November 1949 – December 1961), the shortest 12 months (November 2006 – October 2007). The market more than tripled its value in the average expansion (224% average cumulative return; 20.8% annual return).
Viewed against that backdrop, the current expansion doesn’t look unusually long or strong. As of December 2025, it was in its 25th month, which is less than half the norm. Moreover, the market’s 21.4% per year return over that 25-month span was in line with what we’ve seen historically.
Even if we were to measure this bull market from the low of the prior decline (in September 2022), it hasn’t been especially strong. It’s risen around 93% off of that low, for a 22.5% per year annual gain. That’s only slightly higher than the 20.6% average annual return of prior periods.
Myth 2: This Bull Market Is Long in the Tooth
It’s been more than three years since the market last troughed in September 2022. While that might seem like a long time to remain on the upswing, it’s actually not.
Since 1926, it’s taken the market 37 months, on average, to recoup the losses from a prior decline (defined as a drawdown of 20% or more from a prior high). The quickest recovery was four months (the snapback covid rally in 2020), the longest more than 12 years (the arduous postdepression period ended in 1945).
As mentioned earlier, the average expansion has lasted 69 months. When you take that together with the average recovery’s three-year duration, it means there’s been around nine years on average from the prior decline’s low and the next peak.
By that measure, this bull market is far from long in the tooth.
Myth 3: It Just Takes One Bear Market
It’s true that a bad bear market can fast erase the market’s gains. For instance, US stocks had notched a 4.5% annual inflation-adjusted return over the 10 years ended Oct. 31, 2007. Yet less than a year later, investors were looking at a lost decade amid the damage that the global financial crisis had wrought.
While that can sow fears of disaster lurking around every corner, the chart underscores the degree to which the US stock market’s long-term success has never been a story of uninterrupted progress but rather of resilience amid setbacks.
Consider that over the past century the market has been in a bear market 142 months. It’s spent another 349 months working its way back to the previous high. So if you think about it, roughly 40% of market history has been spent falling from, or climbing back to, previous highs (around 31% if you exclude the Depression).
There’s nothing wrong with preparing for periodic adversity. It’s why we diversify into bonds, after all, especially those of us in or entering retirement. But the argument that stocks are just one nasty downturn away from abject failure doesn’t hold water based on market history.
Switched On
Here are other things I’m writing, reading, watching, or listening to:
- Me on more weirdness at ERShares Private-Public Crossover ETF (XOVR) (Related: Jason Zweig on the grossness of special-purpose vehicles.)
- Vanguard keeps slicing away
- “Who Is On the Other Side? A Framework for Understanding Market (In)Efficiency” by Michael Mauboussin and Dan Callahan
- What a run: Fidelity’s Will Danoff to hang ‘em up after a nonpareil career
- The prospectus for Robinhood’s forthcoming interval venture fund (not an investment recommendation, at all!)
- You’ve got two days to spend $1,000 at McDonald’s, what’s your plan?
- “Meru”
Don’t Be a Stranger
I love hearing from you. Have some feedback? An angle for an article? Email me at jeffrey.ptak@morningstar.com. If you’re so inclined, you can also follow me on Twitter/X at @syouth1, and I do some odds-and-ends writing on a Substack called Basis Pointing.
