Comparing Current Bear Market To Great Depression’s

The current bear market has been inevitably compared to the greatest US stock market decline after the 1929 crash. The chart below compares the (inflation adjusted) S&P 500 index during both periods, starting from their respective tops:

Source: Chart of the Day

The magnitude of the decline was much more severe in 1930 but the fractal nature of the market is relatively intact when we focus on the direction and time lengths. Each wave has lasted approximately an equal amount of time and been in the same direction.

The initial break lasted about 2 and a half years. The counter trend rally that followed lasted about 5 years. The next leg down lasted about 2 years. And the second bear market rally was weaker and lasted just 2 years. That brings us to today’s market where if the historical pattern is to continue, the current rally should reverse very soon.

Based on seasonality and the presidential or election year cycle, the market has the afterburners on. That extremely positive sweet spot will last for a few more weeks. So we can add this historical pattern to the many indicators we’ve already looked at that are signaling a potential top for the equity markets.

One caveat is that this is comparing the current S&P 500 index with a reconstituted index that didn’t really exist back in the 1930’s and was calculated after the fact. So the comparison is a bit artificial. I’d prefer if we looked at the Dow Jones indexes because they both existed in each time period.

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One Response to Comparing Current Bear Market To Great Depression’s

  1. PEJ says:

    Yes, agreed on the fact that the DJIA should be used in this comparison.
    I’ll see whether or not I find some time during the xmas period to create such a chart…

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