Chart of the Day - 12/22/2010
S&P 500 Great Depression Comparison


Today's chart of the day displays a clear sign of the volatility that occurred both to the upside and to the downside for a long 20 years after the Great Depression began in 1929 up through 1949 on the chart.

Anyone staying clear of the market during those times would have missed out on tremendous opportunities with the large percentage moves up and down, but a long term buy and hold investor would probably have suffered from extreme stress handling the moves all the way through.

If today's market is anything in comparison, it appears we'll be in for another 10 or so years of similar up and downward movements, with the next move potentially to the downside. I know times are different, but what do you think?

Today's chart compares the inflation-adjusted S&P 500 performance during the current secular bear market (the inflation-adjusted S&P 500 peaked in 2000) to the inflation-adjusted S&P 500 performance following the peak of 1929 (i.e. during the Great Depression).

For today's chart, both the 2000 to present S&P 500 (blue line) and the 1929-1949 S&P 500 (gray line) having been normalized to where each of their peaks begin in year zero and at the $100 level.

What is of interest is not that both of these markets had declines and rallies of equal magnitude -- they did not. What is of interest is that both bear markets have tended to head in the same direction for approximately the same amount of time.

For example, both bear markets suffered through a major decline during the first 2 1/2 years and then rallied sharply into year seven. Both markets then formed a major peak in year seven and declined sharply in the middle of the eighth year. Both bear markets have continued to follow a similar path following the eighth year trough.

However, if this similarity in direction were to continue, the current stock market rally would need to close out in fairly short order.

Chart courtesy of Chart of the Day
Chart of the Day S&P 500 Great Depression Comparison 12/22/2010

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