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S&P Now vs. The Great Depression

July 6th, 2010 Michael McDonough

Recently I’ve come across several headlines comparing recent activity in the stock market to what occurred during the Great Depression, so I ran the numbers.  The attached chart tracks the S&P 500 20 months prior (t-20) to its respective high prior to the Great Depression and the recent recession; ‘t’ indicates the actual high.  You can then compare the performance of the SPX during both downturns on a monthly basis (t+1, t+2, etc…) from the highs.  I am no technical strategist, but other than the initial fall I fail to see any similarities between now and then.  During the Great Depression the S&P lost nearly 90% of its value over 34 months; the S&P is presently 33 weeks off of its high and is down only 34%, and even at the lowest level was down only 53%.  Surprisingly, it took the SPX until the early 1950’s following the Great Depression to recoup the losses the SPX has already regained since the start of the recent recession.  The bottom line is a more responsive central bank and coordinated government actions may have helped us escape the full pain of the 1920s, but we still have a long steep hill to climb before we move away from the danger zone.  Let’s not forget the effects from reversing fiscal stimulus and unprecedented monetary policy responses—that helped stave off deeper loses—are still unknown and could eventually weigh down the markets.    

Source: Bloomberg

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