Feels Like 1929? Not So Much.  

By Lat Peak

            It may be February, but it’s beginning to look like Christ-…. the start of another Great Depression?

            According to Mark Hulbert of MarketWatch.com, this claim may not be so far-fetched after all.

            “There are eerie parallels between the stock market’s recent behavior and how it behaved right before the 1929 crash,” Hulbert said.

The evidence? A graph that has made the rounds on Wall Street compares the Dow Jones Industrial Average of 1928-1929 to the present day market of 2013-2014. And the similarities are frightening.

            The Dow Jones Industrial Average was invented in 1896 by Charles Dow. It is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the tech heavy Nasdaq. Along with the S&P 500, it is one of the most heavily watched indexes in the world from Wall Street fat cats to stay-at-home traders.  

            When the above pattern was first identified in late November, it was met with heavy skepticism. According to Hulbert, the biggest objection was that the chart was a “shameless exercise in after-the-fact retrofitting of the recent data to some past price pattern.” In other words, Tom DeMark, who is credited with discovering the trend, was trying to manipulate current market data to match that before the Great Depression.

            “Originally, I drew it for entertainment purposes only,” said Demark. “Now, it’s evolved into something more serious.”

            To the amazement of Wall Street and investors everywhere, the market since November has very closely followed the 1928-1929 pattern. So, should Americans everywhere cash out their 401 (k)s and make a run on their local bank?

            “While investment history doesn’t necessarily repeat itself, it does rhyme.” said Doug Kass, hedge fund manager of Seabreeze Partners. “The correction might have just started.”

            In my opinion, while the graph is a bit eerie, it is nothing more than a spooky coincidence. After suffering from one of the worst market downturns since the Great Depression, US stocks have been on an upward surge since 2008. Investors who left their money in the market during the downturn have seen significant recovery in their portfolios.  While many analysts predicted a market correction last year, the S&P 500 rose 33%.

            What has caused this inflated, overpriced stock market? Many Wall Street analysts attribute it to the Federal Reserve’s aggressive QE monetary policy, which has fueled the rise in stocks.

            In conclusion, will there be a market correction in 2014? History suggests that stocks are at their absolute peak at the moment, but only time will tell. But, the chances of the stock market crashing this April? I would say slim to none. Many global financial institutions came shockingly close to collapsing in 2008, just six years ago. Credit standards have been tightened, and Wall Street banks have curbed their once reckless appetite for risk. So, my guess is the chances of another credit meltdown are probably less than 1%.  

            We’re all going to be fine.  I hope.

 

Source: http://www.marketwatch.com/story/scary-1929-market-chart-gains-traction-2014-02-11