U.S. Stocks: Today vs. 1938

As investors debate the longevity of the nascent stock market advance, they are increasingly falling back on similar historical situations to glean perspective. In this regard, a comparison of the current market and that of 1936 - 1938 makes for interesting reading.

Strikingly, the charts below, courtesy of Bespoke, show similar patterns in the movements of the S&P 500 Index from 2007 to 2009 to those of 1936 to 1938.

Given the similarity of the advances and declines in these periods, Bespoke looked at how the S&P 500 would have to perform going forward in order to keep the relationship intact.

At its peak on May 8, the S&P 500 had notched up gains of 38.2% from the March lows. In 1938, the S&P advanced 50.5% in the four months following its low.

Bespoke said:

If the S&P 500 were to have a similar rally off its lows today, it would top out at 1,018. While breaking 1,000 on the S&P 500 seems remarkable given where we were in March, it is still nearly 200 points lower than where the index was trading before the Lehman Brothers bankruptcy.

Time will tell …

click to enlarge

Source: Bespoke, May 18, 2009.

Comments

[jeandit75:]

Forget the 1938 stock market because we are at the beginning of a mega depression and if any comparisons it shoulf be with 1930 and not 1938. But on your hat. The slide will be brutal.

May 20 08:01 AM

[Vienna:]

Agree, placed the same comment on the original article, compare apples to apples, and not something that just quite by chance seems to look the same, although it happened at a very different time in the process of the recession.
I'll probably be able to pull out 10 charts plus, that show a similar pattern somewhere sometime. What does a trend 8 years into a recession give us for comparison.
Blunt and easy marketing, one out of 2268 articles. Stop copying those big guys from whereever they are. Don't you learn. Big Bank, Big Car, big bullshit.




On May 20 08:01 AM jeandit75 wrote:

> Forget the 1938 stock market because we are at the beginning of a
> mega depression and if any comparisons it shoulf be with 1930 and
> not 1938. But on your hat. The slide will be brutal.

May 20 08:19 AM

[russ:]

Sorry, but the Chicken Little's are more amusing than enlightening. I find very few comparisons with 1938, the economy is quite different and the tools/ knowledge is vastly different. To our fearful friends, please shut the door as your desend into your bomb shelter.

May 20 08:30 AM

[socrateazz:]

Although I think the 1938 chart does appear similar, I would then have to concider the 2000-2002 chart being similar to 1929-1931. Assuming that, I would then have to say Bush did a fantastic job of keeping us out of a depression! I guess similaries can be interpreted many ways. Over lay a 1922 to 1944 chart with a 1992 to present chart. Where are the similarities? Go figure!

May 20 08:53 AM

[GrandpaTwiggy:]

I am not sure how accurate comparisons to the Great Depression are. We have a totally different economy - no rural. A much high percentage of people today invest. We are better educated, more informed. Home mortgages did not exist in the 30's.The global economy was very small as compared to today.

May 20 09:12 AM

[User 128742:]

What a joke. You can go back in time and find 100's of places where a particular index fits the past few months (has the same shape) - if you adjust the scales to make it so. What's the reason for choosing 1938 to compare to? USELESS.

May 20 09:13 AM

[jeandit75:]

Well, today's economy is different from the one of the 30s but it does not matter. What is similar is the total debt in the system that will have to be unloaded. This will mean more forced selling like we saw last fall (I am not saying at the same speed but certainly at the same magnitude). The system will have to delever at all levels, wether at government, corporate (especially the banks) and individuals. Its that simple. We are not out of the woods yet...its just a start. Good luck to anybody who still has not figured this out.


On May 20 09:12 AM GrandpaTwiggy wrote:

> I am not sure how accurate comparisons to the Great Depression are.
> We have a totally different economy - no rural. A much high percentage
> of people today invest. We are better educated, more informed. Home
> mortgages did not exist in the 30's.The global economy was very small
> as compared to today.

May 20 09:25 AM

[ERCaptain:]

I honestly wonder why the "mega depression" believers even bother coming to post here.

Are they trying to warn those of us who see the current decline as an historical opportunity? Has Warren Buffet's wisdom of "when investing, euphoria is your enemy, pessimism is your friend" failed us this time? Or are they just part of the "misery loves company" crowd?

Thanks for a good article.

May 20 11:42 AM

[dcb:]

the big difference is the area between red and blue. that is the area of max goldman prop desk trading this year. maybe the market wasn't as manipulated then.

May 20 12:32 PM

[Fred Voetsch:]

Worthless drivel.

I can find tons of stock charts that match up better than what is shown here. Such "data" shows a complete lack of comprehension of how to value a market.

Here is how you do it:
www2.standardandpoors....

Then take an objecive look at Leading Economic Indicators, how far along we are in deleveraging, demographics, industrial production, trade levels, public debt, political trends, throw in a little Dow Theory and technical data to help determine buy/sell pressure and mix well.

Good luck with those charts, though.

May 20 04:23 PM

[Fred Voetsch:]

On May 20 11:42 AM ERCaptain wrote:

> I honestly wonder why the "mega depression" believers even bother
> coming to post here.
>
> Are they trying to warn those of us who see the current decline as
> an historical opportunity? Has Warren Buffet's wisdom of "when investing,
> euphoria is your enemy, pessimism is your friend" failed us this
> time? Or are they just part of the "misery loves company" crowd?


I'm certainly not a "mega depression" believer as I have spent the vast majority of my lifetime being bullish on the stock market. But what I would ask is this: when these "mega depression" people, as you call them, told you in 2006 and then in 2007 and then in 2008 and now in 2009 that we have too much leverage, extremely low savings rates (then) and earnings (now) and low earnings potential going forward, did you listen?

Did you listen in 1999 and 2000? Would you have listened in 1929?

Hey, you're right, there is no reason to provide hard data...nobody is listening.

But I'll do it again:

www2.standardandpoors....

"466 issues (95.41% mkt val) rptd: initial good reports long gone, actuals are -25.9% off ests (see Energy note), and -45.4% behind last year"

That's DATA, from Standard & Poor's, for the current earnings period, not an opinion. The current P/E is well over 100 and earnings continue to decline.

From CNBC at www.cnbc.com/id/15839135

"The blended earnings growth rate for the S&P 500 for Q1 2009, combining actual numbers for companies that have reported, and estimates for companies yet to report, fell to -36.3% from -35.1%.
If the final growth rate for Q1 '09 remains negative, it will be the first time the S&P 500 recorded 7 straight quarters of negative growth since Thomson Reuters began tracking the data in 1998.At the start of the quarter, the estimated growth rate for Q1 was -12.5%. (Data provided by Thomson Reuters)"

Get it? Probably not because I'm just a permabear...with data :-)

Good luck in 2009 because you'll need a lot of luck if you choose to ignore the cold, hard facts.

May 20 04:36 PM

[Fred Voetsch:]

On May 20 09:12 AM GrandpaTwiggy wrote:

> I am not sure how accurate comparisons to the Great Depression are.
> We have a totally different economy - no rural. A much high percentage
> of people today invest. We are better educated, more informed. Home
> mortgages did not exist in the 30's.The global economy was very small
> as compared to today.


It would be easy to blast you for your comments but they point out some important things:

1. People always like to say it's different this time but it never is. In the 1920's they thought THEY had conquered the economy with technology and industry. They had an unemployment rate of just 4.5% in 1929.

2. There is MUCH MORE LEVERAGE now. You have it, your bank has it, your neighbor has it, the country next to us has it....

3. A global economy means that it is MORE LIKELY that problems will spread more efficiently.

May 20 04:42 PM

[couldashoulda:]

I view the charts not so much as a comparison of causes and effects on the market of this recession versus the 30's depression but rather
simply a comparison of this market sell off to an earlier one of similar amplitude and duration regardless of causes. I find it instructive if not definitive as to what might happen. (history rhymes).

If folks can identify charts for other market sell offs that are similar to today and the resultant market dynamics, I would like to see them

May 20 05:06 PM

[SeekingTruth:]

For the most part, have to agree with Fred Voetsch (spelled it right this time).
A deep oversold status started this rally and a modest to medium gain could be understood and traded for a nice profit in a rational market.
What , however, is driving the market higher?
That things are less awful than last month (maybe) should account for something, but not this.
Suggest that hope, dreams, fantasy, panic buying, and a herd mentality are the major impetus i.e. this suggests that market sentiment and psychology and maybe a little manipulation accounts for far too much of the rally, and is a great lesson in how powerful those factors can be.
Just rememember that $40 per share with 15 times earnings equals an S&P 500 of 600!

How do your stocks/portfolio stack up?

May 20 05:27 PM

[curious cat:]

seeking truth, what has been driving the market, till recently, is the momentum which began when investors decided not to fight the fed. they wanted to believe congress and the previous administration and began to support the market earlier, when congress began debating the bank bailouts. however, congress failed to pass goal and the market tanked, again. bernanke finally came to the rescue, making bold moves to expand the money supply and the investor community remembered the old saw, "don't fight the fed."

interest rates began to fall, libor began to fall, other countries began to agree with our drastic expansionary policies and the bulls took heart. now, we are at a new junction. this is where investors realize that all this expansion will inevitably lead to inflation. so, the dollar begins to tank, other countries begin to talk about abandoning the dollar. gold and other commodities start heading up again. it is too early for the fed to withdraw liquidity. the unemployed still need to be supported. the consumer is unable to help. the government failed to cancel debts, as they should have when values were zero. so, we are left with a weak zombie banking system. the government wants to raise taxes. that will scare corporations further into their shells and frighten investors into taking fewer risks.

you correctly identified market psychology, not fundamentals, as the motivation for the last rally. the opposite of hope, fantasy and panic buying will be next. as we turn from optimism to pessimism and race to escape the falling dollar, we will experience fear once again. our government is on a path that leads to socialism. socialism is not conducive to investments. the morons in congress remind me of the physicians from the dark ages that put leaches on their patients. they mean well, but they continue to suck the life out of america.

May 20 10:42 PM