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Behind
the Numbers: The Bear Market of 1929-32
Brian
Trumbore
President/Editor, StocksandNews.com
Focusing
on the Dow Jones, while no one knows if today's stock
market has finally bottomed, I thought we'd take a
look at some other periods of time on Wall Street
where even during declines, the market staged massive
rebounds. If you think the recent volatility is historic,
we've been here before.
So
to start out, we'll examine the bear market of 1929-32.
You'll recall that the Dow Jones peaked on 9/3/29
at 381.17 and then proceeded to slide all the way
to 41.22 by 7/8/32, a decline of 89%. [By comparison,
the Dow fell roughly 34% in the current market cycle,
peak to trough?thus far.]
But
with the carnage in the markets, you may be surprised
to learn that some of Wall Street's single best days
ever occurred during this period as well.
Post-10/29/29
(the Crash) through 7/8/32
10/6/31?+14.9%
10/30/29?+12.3%
2/11/32?+9.5%
11/14/29?+9.4%
12/18/31?+9.4%
2/13/32?+9.2%
5/6/32?+9.1%
10/8/31?+8.7%
6/10/32?+8.0%
6/3/31?+7.1%
1/6/32?+6.8%
6/20/31?+6.6%
To
put this in context with today's environment, at a
Dow Jones of 8750, a 6% increase would equal a rise
of 525 points. Now picture 12 days far better than
that, even as the market is sliding 89%!
Additionally,
this same period had five rallies in excess of 20%.
[Rounding off?not including fractional Dow Jones figures.]
11/13/29-4/17/30?+48%
[Dow 198 to 294]
12/16/30-2/24/31?+23% [157 to 194]
6/2/31-7/3/31?+28% [121 to 155]
10/5/31-11/9/31?+35% [86 to 116]
1/5/32-3/8/32?+24% [71 to 88]
I
bring up this latter point ostensibly because if the
Dow Jones were to trade up to 9250 in the next few
weeks or months, or days, that would be a 20% rise
from the approximate closing low of 7700 in July.
At this point, there would be those who not only would
claim that we have seen the bottom, but that a new
bull market is underway.
This
may or may not prove to be the case. As you see above,
however, history does afford a note of caution.
And
while we're discussing the 1929-32 bear market, I
thought I'd just throw in some historical tidbits
from this era.
--The
day after the Crash, 10/30/29, President Hoover uttered
his infamous commentary, "The fundamental business
of the country?is on a sound and prosperous basis."
[The market rallied 12% that day.]
--6/17/30,
Hoover signed the Smoot-Hawley tariff act into law,
which slapped duties on 890 articles. Within two years,
25 nations retaliated by raising duties on U.S. goods.
Smoot- Hawley was a major cause of the Depression
and I will have a more in depth look at this in a
few weeks. As for market reaction to the bill, the
Dow declined 4.5% the next day.
--The
Bank of the United States closed on 12/11/30. There
was little market reaction.
--6/20/31,
Hoover proposed a moratorium on war debts and reparations
from World War I, designed to break the enveloping
panic in international markets. The market rose the
next trading day from DJ 138 to 145.
--The
bank panic spread in September and October of 1931,
with 305 banks shutting down in September and another
522 in October. The Dow Jones swooned 31% in September
alone (140 to 96), but it rose 10% in October (96
to 105).
--In
the beginning of 1932, President Hoover reduced his
own salary by 20% and initiated various public works
programs in an attempt to alleviate staggering unemployment,
as up to 13 million were now without jobs. At the
same time, the markets were dealing with deflation.
National wages, for example, were 60% less than in
1929. By mid-1932, U.S. industry was operating at
less than half its maximum from '29.
--Consumer prices:
1930?-6.0%
1931?-9.5%
1932?-10.3%
--July
2, 1932?FDR was nominated and called for a "new deal
for the American people" in his acceptance speech.
The market bottomed six days later?but it wasn't a
straight line back up, which is our topic for next
week.
Sources:
Birinyi
Associates
Wall Street Journal
"The Dow Jones Averages: 1885-1995" edited by Phyllis
S. Pierce
"The Encyclopedia of American Facts and Dates" Gorton
Carruth
Ibbotson Associates Yearbook
Brian Trumbore
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