Volatility is up, rationality seems down. Stocks soar and sink (more sinking, to be sure) from hour to hour, even minute to minute. From mid-May to mid-November last year, the benchmark Standard & Poor's 500 Index went from flat for the year to down more than 40% year-to-date. Understandably, investors' focus has been on those savage six months.

Is the Panic of '08 an anomaly—or a signature episode in a long period of subpar stock market performance? Certainly, as the market seeks its level, unhappy clients and many advisors are wondering. After all, since the dot-com wave crested in March 2000, the S&P 500 has spent most of the past nine years below—often way below—that bull market peak. We could be midway into an extended stretch of asset price stagnation similar to the one investors endured from the late-1960s to 1982, when the last big bull market began.

"We believe that we are in a prolonged secular bear market, during which we'll have to struggle with declining earnings expectations and the shrinkage of price-earnings ratios," says Mike Martin, president of Financial Advantage in Columbia, Md. "That would be a painful blow to stockholders."

If stocks are likely to be disappointing for a while, financial planners may decide to adjust their investment strategies. Before making any major shifts, though, it's valuable to review the debate about long market cycles.

Peaks and Plateaus

In March 2000, the S&P 500 topped 1550, up more than 15-fold from its low in mid-1982. Although there were several bumps along the way (let's not forget the Crash of 1987, for instance), there was only one calendar year out of all 18 in which the S&P 500 dropped: 1990, when it lost 3.2%. Overall, for calendar years 1982 to 1999, the S&P 500 enjoyed an annualized return of 18.5%, according to Ibbotson Associates. Over that same period, inflation was 3.3% a year.

Prior to that great boom, though, stocks had gone nowhere for more than a decade. The S&P 500 first hit 100 in mid-1968; 14 years later, in mid-1982, the Index was still in the same neighborhood. During the calendar years 1969 to 1981, the S&P 500 had five negative years out of 13, losing as much as 26.5% in 1974. Annualized returns were 5.6%, while inflation was 7.8%.

Going farther back into Ibbotson's numbers, you can find a bull market that ran from the late 1940s to the mid-1960s, as well as the horrendous bear market that produced nine down years out of 13, from 1929 through 1941.

Are we in a long down cycle? How bad will it be? There's no way to be certain. "No one knows how long this difficult time will last," says Marilyn Capelli Dimitroff of Capelli Financial Services in Bloomfield Hills, Mich. "It's possible that we'll see a repeat of 1929, followed by a depression, or we'll experience a [stagnant] period like the one that ran from the mid-1960s to 1982."

The Econo-Bears

Woody Brock, founder of Strategic Economic Decisions, a research firm in Scottsdale, Ariz., studies similar time periods (which he calls "dated regimes"), then looks at bonds and housing as well as stock market returns for each one. What he has found is decidedly bearish—at least for the near future. "From 1981 to 2000, wealth in the U.S. grew much faster than growth in gross domestic product (GDP)," Brock points out. During that same period, he calculates that real household asset wealth grew by 9.6% a year, vs. 0.6% a year in the 1966-1980 "dated regime."

"We grew rich because of changing valuations, not fundamentals," Brock continues. "P/E ratios went from 8 to 33. If the long-term average P/E is around 15, we might see much lower P/E ratios in the future, to revert to the mean." (As of early December, the market's P/E was around 18.)

The recent wealth buildup also resulted from higher home prices, the result of a real estate run-up that lasted nearly four decades. Obviously, this is no longer the case in many areas. Brock predicts that housing will remain a poor investment until at least 2025. He sees low or even negative real returns from long-term bonds, which are now at high inflation-adjusted prices. "Wealth growth in the U.S. over the next two decades is likely to be painfully slow," Brock says, "less than the growth in GDP."

Martin cites different metrics to reach his bearish conclusion. "Debt in the U.S. increased from 125% of GDP in the early 1980s to 350% of GDP as of late 2007," he says. "Thus, debt has grown more than twice as fast as the economy for the past 25 years."