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Wall Street History
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08/16/2002
Behind the Numbers: The Bear Market of 1929-32
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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