Historical Inflation Analysis: What the 1940s and 1970s Teach Australian Investors About Market Survival
- Anita Arnold
- Sep 18
- 6 min read
Updated: Sep 19
"I wish I understood how markets behaved during previous inflationary periods." This comment from FMP subscriber Sarah reflects a common desire for historical education during uncertain market conditions.
At Finer Market Points, our educational research examines historical market patterns during inflationary periods. This analysis explores two significant inflationary periods—the 1940s and 1970s—to provide historical context about market behaviour during such times.
Understanding historical patterns provides educational background information only and does not predict future market movements or investment outcomes.
As demonstrated in Gary's educational analysis, historical research shows that market corrections during inflationary periods have typically followed certain patterns—though past performance does not guarantee future results.
The 1940s: Historical Market Data
The 1940s provides historical data about market behaviour during inflationary periods. Research shows the period experienced a market correction of approximately 29% from peak to trough.
Historical Recovery Pattern
Historical data shows that from the 1943 market lows, a 57% rally occurred over a relatively short timeframe. This movement happened whilst inflation remained present in the economy.
Educational research indicates this represents one example of how markets have historically behaved during inflationary periods, though each market cycle differs significantly.
Observed Market Behaviour Patterns
Historical analysis of the 1940s reveals this pattern in market data:
Initial market decline (29% correction)
Subsequent rally period (57% recovery)
Extended volatile trading periods
The 1970s: Extended Inflation Period Data
The 1970s represents the most extended inflationary period in modern market history for educational study. Inflation rates during this period reached:
1973: 6.2%
1974: 11%
1975: 9.1%
Peak of 13.5% in 1980
Historical Market Response Data
Research shows that despite facing sustained inflationary pressure, markets demonstrated significant volatility during this period. After a 46% correction from previous highs, historical data shows an 80% recovery rally occurred over approximately 15 months.
Market Sentiment Historical Patterns
Historical research into the 1970s period shows extreme pessimism at market lows, similar to patterns observed in other market cycles. Understanding these historical sentiment patterns provides educational context about market psychology during stressed periods.
Historical Sector Performance Data
Educational research into sector performance during historical inflationary periods reveals varying performance characteristics across different market segments.
Historical Performance Observations
Energy Sector Historical Data
Showed strong performance during some inflationary periods
Exhibited significant volatility with substantial price movements
Performance varied considerably year-to-year during inflationary periods
Value Stocks Historical Performance
Historical data shows 13.6% average annual returns during the 1970s inflation period
Demonstrated different performance characteristics compared to growth stocks
Showed relatively lower volatility during some inflationary periods
High-Dividend Stocks Historical Data
Research shows these stocks provided income during inflationary periods
Historical performance varied based on dividend sustainability
Income characteristics differed from capital growth investments
Historical Underperformance Observations
Growth Stocks and Small Capitalisation Stocks
Historical data shows underperformance during some inflationary periods
Research indicates higher sensitivity to interest rate environment changes
Performance characteristics differed significantly from value-oriented stocks
Precious Metals Historical Data
Showed significant volatility during historical inflationary periods
Performance included substantial up and down movements
Historical returns varied considerably across different timeframes
Educational Note: All historical performance data is provided for educational purposes only and does not predict future sector performance.
Property Historical Context
Research shows property during the 1970s inflation delivered approximately 9.5% annual returns over the full period. However, historical data reveals property experienced three consecutive years of price declines during portions of this inflationary period.
This historical context provides educational information only about how one asset class performed during a specific historical period.
Market Psychology Historical Patterns
Educational research into market psychology during historical inflationary periods reveals patterns of investor sentiment. Historical data shows that extreme pessimism often coincided with market low points, though timing these periods proved consistently difficult for market participants.
Historical Sentiment Indicators
Recent market sentiment data shows characteristics similar to historical market stressed periods:
Elevated bearish positioning in options markets
Reduced equity allocation among institutional investors
Classical contrarian sentiment indicators at elevated levels
Psychology Research Findings
Historical research reveals common emotional responses during market stress periods. Educational studies show that natural human responses—such as reducing positions during weakness—often conflicted with longer-term investment outcomes.
Understanding these psychological patterns provides educational context only and should not influence investment decisions without appropriate professional advice.
Historical Performance Context During Inflationary Periods
Historical research into asset class performance during inflationary periods reveals several educational insights, though past performance does not predict future results.
Historical Asset Class Data
Cash and Fixed Income Historical Performance Historical data shows cash positions earned 3% during periods when inflation exceeded 6%, resulting in negative real returns over those timeframes.
Equity Market Historical Performance Research indicates equity markets showed varying performance during different inflationary periods, with significant volatility characterising most such periods.
Dividend-Paying Assets Historical Data Historical analysis shows dividend-paying investments provided income streams during inflationary periods, though dividend sustainability varied significantly among companies.
Historical Volatility Observations
Market Movement Patterns Both historical periods demonstrated that inflationary environments did not create smooth market trends. Research shows "substantial up and down movements" characterised even successful sectors during these periods.
Recovery Timeline Data Historical data shows that significant market recoveries (57% and 80% rallies) occurred relatively quickly from pessimistic market points, though timing these movements proved extremely difficult.
Performance Variation Educational research indicates that substantial opportunities emerged from periods of maximum market pessimism, though identifying these periods in real-time remained challenging for market participants.
Educational Resources for Historical Analysis
The historical patterns examined here provide educational context about market behaviour during inflationary periods. FMP YouTube members access ongoing educational analysis through our weekly 3030 Report, featuring:
✓ Educational analysis of current market conditions in historical context ✓ Sector performance research specific to Australian market conditions✓ Historical pattern analysis applied to current market observations ✓ Educational discussions with Gary Glover and experienced market participants ✓ Research insights delivered to members before public release
Weekly 3030 Report ↳ Systematic educational monitoring across multiple market sectors ↳ Historical pattern analysis applied to current conditions ↳ Educational sector research based on historical performance studies
Complete Educational Video Library ↳ 800+ professional market education videos ↳ Historical market analysis and pattern recognition education ↳ Systematic approaches to understanding market psychology
Early Educational Access ↳ Educational research and analysis before public release ↳ Member-only educational content during volatile periods
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Key Educational Takeaways
Historical analysis of the 1940s and 1970s inflationary periods provides several educational insights about market behaviour during such times. Research shows patterns of initial market stress followed by recovery periods occurred in both historical examples, though each period differed significantly in duration and characteristics.
The 57% rally in the 1940s and 80% recovery in the 1970s represent historical examples of market movements during inflationary periods. Educational research shows value stocks demonstrated different performance characteristics during sustained inflation, achieving 13.6% annual returns during the challenging 1970s period.
For Australian investors seeking education, understanding these historical patterns provides context about past market behaviour during inflationary periods. Research suggests that systematic approaches to market analysis often proved more effective than emotional decision-making during historically stressed market periods.
Important Reminder: All historical analysis is provided for educational purposes only and does not constitute financial advice, recommendations, or predictions about future market behaviour.
FMP members benefit from ongoing educational analysis that applies historical research to current market observations, providing educational context through systematic research rather than speculation.
Want to see how historical analysis applies to current market education? FMP provides educational commentary through detailed market analysis and member-exclusive educational content.
IMPORTANT NOTICE: This content is for educational purposes only and does not constitute financial advice. Past performance does not indicate future results. All investments carry risk of loss.
Educational Disclaimer: All content provided is for educational purposes only and does not constitute financial advice.
Risk Warning: Past performance does not indicate future results. All investments carry risk of loss. This analysis is for educational purposes only.
Disclaimer: Finer Market Points Pty Ltd, CAR 1304002, AFSL 526688, ABN 87 645 284 680. This general information is educational only and not financial advice, recommendation, forecast or solicitation. Consider your objectives, financial situation and needs before acting. Seek appropriate professional advice. We accept no liability for any loss or damages arising from use.
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