When comparing the performance of S&P in November this year with 1929 an interesting pattern shows up. In both years equity markets lost 26% in the first half of November and then recovered almost 61.8%. If 1929 is any guide going forward we would reached 900 in S&P in the next few days. Then sell-off down to 840 before rallying back to 940 in early December before ending the year at 870 for a 40% loss on the year.
S&P 2008:
S&P 1929:
The story for 2009 would be a rally in Q1 on a Obama "New New Deal" hope and expectations of a positive effect from all the government support done so far.
Then reality sets in early Q2.
Of course this will not happen because policy makers are so much smarter than in 1930 and we know much more about the way economies function or do we?
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2 comments:
You mean the rally won't happen, as investors are much smarter this time? :-))
Great observation. To add a bit more storytext to the pictures here from wikipedia: "The Great Depression was not a sudden, total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929. Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the northern summer of 1930.
In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing."
I don't think we need a drought to add to the misery this time. Expectations are broken and the Fed believes it can fool the populace at nauseam.
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