The internet is buzzing with comparisons of the Dow Jones Industrial Average charts from the roaring twenties (1928-29) and today’s market trends. These charts highlight startling visual similarities, leading some investors to fear a repeat of the catastrophic 1929 stock market crash. Are these fears justified, or are we comparing apples and oranges? Let’s delve into a detailed Dow Jones Industrial Average Compare Chart analysis to separate market myth from reality.
The alarming chart comparisons often circulate online point to a near-identical upward trajectory in the Dow Jones Industrial Average in both periods, followed by a sharp peak, suggesting we are on the precipice of a similar steep decline. This visual parallel understandably causes anxiety. However, a closer examination reveals critical differences that undermine the validity of this direct comparison for predicting market crashes.
One of the most significant flaws in simply using a Dow Jones Industrial Average compare chart to predict a 1929-style crash lies in the magnitude of the market’s ascent in both periods. During the 18-month window of the 1928-29 bull market, the Dow Jones Industrial Average experienced explosive growth, roughly doubling in value. It soared from under 200 points to approximately 380 points. In contrast, the more recent period, while showing substantial growth, reflects a more moderate increase. The Dow Jones only rose by about 30 percent.
If we were to assume the chart pattern held perfectly, a 50% drop from recent Dow highs, as experienced post-1929 peak, wouldn’t lead us to the doomsday scenarios some predict. A 50% decline from a Dow of 16,588 would indeed take us to around 8,294. However, considering the smaller percentage gain in the recent period, a similar percentage correction would only bring the Dow down to approximately 12,500. This is a significant correction, but far from a market collapse to levels reminiscent of the Great Depression.
Furthermore, the catastrophic 89% plunge of the Dow Jones from its 1929 peak to the market bottom in 1932 is what truly fuels the fear in these chart comparisons. Proponents of the 1929 parallel suggest a similar 89% crash from today’s levels would send the Dow Jones Industrial Average plummeting from 16,588 to a staggering 1,825 – levels last seen in the late 1980s. However, this extreme scenario relies on the flawed assumption that historical chart patterns are deterministic predictors of future market behavior, ignoring fundamental economic and structural differences.
Perhaps the most critical, and often overlooked, flaw in this Dow Jones Industrial Average compare chart analysis is the drastic evolution of the Dow Jones index itself. The 30 companies that constitute the Dow Jones Industrial Average today bear little resemblance to the 30 companies that comprised the index in 1929. In fact, only General Electric (now split into multiple entities) and Standard Oil of New Jersey (now ExxonMobil) represent any real continuity. The 1929 Dow included companies like American Smelting, American Sugar, General Railway Signal, International Nickel, National Cash Register, and Woolworth – companies reflective of a vastly different economic landscape. Comparing the Dow Jones chart of today to that of 1929 is fundamentally comparing a modern, diversified index dominated by tech and finance giants to a historical index heavily weighted towards industrial and commodity-based businesses. It’s akin to comparing apples and oranges – the visual similarity is superficial and lacks deeper analytical value.
In conclusion, while the visual parallels presented in the Dow Jones Industrial Average compare chart between 1928-29 and recent periods might seem unsettling at first glance, a deeper analysis reveals significant weaknesses in this comparison. The percentage gains are different, and crucially, the composition of the Dow Jones Industrial Average has transformed dramatically over the past century. Therefore, losing sleep over these chart similarities as predictors of an imminent 1929-style crash is unwarranted.
However, dismissing the 1929 chart comparison entirely shouldn’t lead to complacency. Market corrections are always a possibility. In fact, as of 2014 when the original article was written, a significant correction had been overdue since the last one in the summer of 2011. Prudent investors should always be prepared for market volatility and corrections, but relying solely on simplistic Dow Jones Industrial Average compare charts from nearly a century ago is not a sound basis for investment decisions. Focus on fundamental analysis, economic indicators, and your own risk tolerance rather than being swayed by fear-mongering chart comparisons.
