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CNBC ON DIGG

80 Years Since the Crash of '29

Published: Thursday, 29 Oct 2009 | 7:14 AM ET

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By: Ariel Nelson
Director of Market Data & Content Services

This Day in Market History
The Dow [.DJIA Loading... () ] fell 119.48 yesterday or 1.2% and many are talking about a correction in the markets that may be underway. After a run up of over 50% since the market lows in March, a pull back is natural. That, however, hardly compares to the events that began 80 years ago on October 28-29.

Before the Great Crash of 1929, the roaring twenties was a time of growing wealth... and speculation. From its low of 63 in August 1921 to its peak on September 3, 1929 at 381.17, the Dow had gained over 500%.

By the spring of 1929, the warning signs began to emerge and volatility was rapidly rising with daily swings that ranged as high as plus or minus 5%. Each time the Dow dropped, it recovered, at least until the fall of that year when it began to slide downward. After falling 8% over the 2 days from October 23-24, the market crashed on October 28 and 29, falling 13.5% and another 11.7%, or 23.6% over the two-day period and helping to lead the country to the Great Depression. After an initial 48% rally back from its low of 199 in November, the Dow proceeded to lose ~90% of its September high, closing at 41.22 on July 8, 1932. It took until late 1954 to reach its pre-crash levels.

At the start of the current financial crisis, many were comparing the events of today to the period of the Depression. Both crises were rooted in questionable lending practices and an economic bubble. In 1929, the market fell 48% from its high to its low and then rallied 48% while in the current recession, the market fell 54% from its intraday high to its low and then rallied 56% to its intraday high on October 21 last week.

So is history repeating itself? Hopefully and likely not. There are many more protections in place today and the economy has been showing signs of a slow recovery. GDP is expected to turn positive this quarter and will be reported later this morning.

Looking at the chart above, the 1929 crash was closer in pattern to the 1987 crash, at least for the first 200 trading days after their big falls. Both crashes began on "Black Mondays" and both times, the Dow fell ~23%. In 1987, the market initially came back, but unlike 1929, it kept rising and got back to its pre-crash levels by mid-1989. The Dow kept rising until mid-1990 when another recession began.

Sure the credit crisis of 2008-09 had much in common with 1929, particularly for financials like Bear Stearns, Lehman, Citigroup [C Loading... () ], Bank of America [BAC Loading... () ], and AIG [AIG Loading... () ]. However, and in the end, the Great Crash of 1929 stands alone and hopefully will never repeat again.