## The Behind the All-Time Highs of U.S. Stocks: A Five-Century Cycle of Bulls and Bears

The Dow Jones Industrial Average (DJIA) has been around for over a century since its inception in 1896. It has witnessed the rise and fall of the U.S. economy and recorded the tumult of global capital markets. Originally composed of 12 companies and now comprising 30 giants, this index has long served as a barometer for the performance of U.S. stocks. Reviewing the full history of the DJIA reveals an interesting pattern: major economic crises often give birth to new record highs in the U.S. stock market.

## What is the Dow Jones Industrial Average

The DJIA (commonly called the Dow) was created in 1885, initially consisting of 12 American industrial companies' stocks. Over a century of evolution, its components expanded to 30 representative large-cap publicly traded companies. These 30 companies cover key industries such as finance, technology, consumer, and energy, with their stock price movements directly reflecting the health of the U.S. economic system. Investors generally regard it as the primary indicator of overall U.S. stock market performance.

## An In-Depth Analysis of Five Cycles of Bulls and Bears

**First Cycle: Post-War Prosperity and the 1929 Stock Crash**

The 1920s marked a golden era for the U.S. economy. Driven by post-World War I reconstruction and the industrial revolution, the stock market entered a decade-long bull run. The DJIA surged from less than 70 points to 381 points, an increase of over 5 times. Ford implemented assembly line technology, and the automotive industry flourished, boosting overall market valuations.

The turning point came in autumn 1929. After a decade of bullishness, bubbles began to show. The DJIA plummeted from 381 points to 41 points, an 89% decline, over 34 months. This stock market crash led the U.S. into a prolonged four-year Great Depression, marking the first deep correction in stock market history.

**Second Cycle: Recovery and Impact under the Context of World War II**

In the early stages of WWII, the U.S., which had not yet entered the war, became the largest supplier to the combatant nations. War orders surged, driving rapid economic growth. However, everything changed after the Pearl Harbor attack on December 7, 1941. Following the U.S. declaration of war on Japan, the increased war risk caused the stock market to fall sharply, with the DJIA dropping from 196 to 93 points, a 53% decline, lasting about 61 months.

After the war ended, the situation reversed. With Europe and Asia devastated, only the U.S. maintained steady growth, becoming the global economic center. Starting in 1954, the U.S. stock market entered a decade-long bull market, laying the foundation for post-war prosperity.

**Third Cycle: Reagan Prosperity to Black Monday in 1987**

In 1980, Reagan took office and implemented aggressive economic policies, stimulating the economy through high interest rates, tax cuts, deregulation, and attracting foreign investment. The U.S. economy entered a virtuous cycle, with corporate vitality fully unleashed. Against this backdrop, the DJIA soared from 769 points in August 1982 to 1,930 points in December 1986, a 250% increase over five years.

However, the inflated valuations could not last forever. On October 19, 1987, the stock market crashed by 22.62%, the largest single-day decline in DJIA history. Over the following two months, the decline accumulated to 40%. This sudden crash was essentially a concentrated correction of the years-long bull market bubble.

**Fourth Cycle: The Rise and Fall of the Internet Era**

The 1990s saw a highly dynamic U.S. economy. After the Cold War, the U.S. focused resources on economic development. Under Clinton’s policies, the stock market entered a golden era. The DJIA climbed from 2,353 points in October 1990 to 11,750 points in March 2000, a 499% increase over ten years. Emerging tech companies proliferated, and global expansion was remarkable.

But euphoria came at a cost. During the dot-com bubble, many unprofitable tech stocks were wildly overhyped, with prices detached from true value. After the bubble burst, the DJIA fell from 11,750 to 7,181 points, a nearly 39% decline over 31 months. The NASDAQ suffered an even deeper drop of 78%, confirming the overvaluation of tech stocks.

**Fifth Cycle: Subprime Crisis to New Highs in U.S. Stocks**

Following the dot-com bubble, capital flooded into the real estate market. Financial institutions issued "subprime mortgages" to credit-poor homebuyers and packaged them into complex derivatives. When housing prices declined and borrowers defaulted en masse, the 2008 subprime crisis erupted. The DJIA collapsed from 14,198 to 6,470 points, a 54% decline, in just 17 months.

In the decade after the crisis, U.S. stocks experienced a miraculous recovery. The Federal Reserve implemented zero interest rates and quantitative easing, while corporations repurchased large amounts of stock, and tech giants like Apple posted steady growth. These factors combined to propel the DJIA into the longest bull market in history—rising from 6,470 points to 29,569 points in February 2020, an increase of over 457%.

## Lessons from the All-Time Highs of U.S. Stocks

Every time the U.S. stock market hits a new high, it signals the brewing of a new correction. The February 2020 peak at 29,569 points may seem dazzling, but the DJIA’s average P/E ratio had already reached 26.7, far above the historical average of 16. The subsequent global pandemic was merely a trigger; the real risk was the overvaluation accumulated over time.

The fundamental reason the Dow Jones Industrial Average can keep reaching new highs lies in its stock selection mechanism—continually removing declining companies and adding stable, high-performing firms. This dynamic adjustment allows the index to represent the core competitiveness of the U.S. economy.

Investors observing the all-time highs should not only focus on the numbers themselves but also consider the valuation logic behind them. The alternating cycles of bull and bear markets are part of the market’s self-purification and capital reallocation process.

## Practical Investment Tips

The DJIA trades according to the U.S. stock market schedule—trading hours are from 9:30 a.m. to 4:00 p.m. Eastern Time. Considering daylight saving time changes, investors should adjust accordingly based on their local time zone.

Understanding the economic cycles behind U.S. stock market peaks helps investors make more rational decisions. Each bull-bear cycle stems from fundamental economic changes rather than short-term emotional fluctuations.