We can look at the Dow Jones over the past few years and make comparisons with the stock market crash of the 1930s.
Below is a monthly dow chart of the last 3 years or so:
On October 9th 2007 the dow made a record high of 14,164 points.
This was after several years of growth after the tech crash.
By early 2008 the dow crashed down to just 6547 points. There was global panic everywhere. This is a staggering drop of around 54%. At the time of writing this post the market has climbed half the way back up to the all time high.
There has been a global recession. It seems like many countries are not slowly coming out of it.
Back to the 1930s
Many traders have compared the recent crash led by financial companies to the crash that began in the late 1920s and the subsequent depression that followed afterwards.
There are definitely some parallels, but I think the recent crash is RELATIVELY mild in comparison.
As you can see from the chart above. There was a huge bubble throughout the 20′s. The stock market opened to individual investors during this era and many thought it was an easy way to get rich.
Many individuals had all of their money tied up and even borrowed additional funds.
It was a common belief back then that the stock market could “only go up”.
What happened afterwards was disastrous. The market collapsed completely. A major depression followed. GDP fell by around 25%. Unemployment reached 25%. Shanty towns formed all over America.
The high of 380 points was soon followed by a low of just 44 points. A drop of around 89%. The 380 point mark was not hit again for over 30 years. If inflation over this period of factored in, it would be around 40 years.
I believe the quick response from central banks to put huge amounts of funds into the financial system has averted a full scale depression this time round. I believe growth will return slowly across the world.
Whilst we are not out of the woods by any means yet, the future is starting to look a little brighter.
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