A panic-inducing chart for stock investors

published 28 February 2014

Every so often, a terrifying stock market chart does the rounds. The latest purports to show that since mid-2012 the Dow Jones Industrial Average (DJIA) has been mirroring the pattern seen in the same index in 1928-1929, implying that we are about to plunge off a cliff.

Pay no attention. For starters, it's not hard to construct apparently eerie similarities between different eras. Dan Greenhaus of brokers BTIG notes that the S&P 500's development after the 2011 debt ceiling drama looks a lot like the S&P in the run up to the 1987 crash.

But since that crash was briskly followed by the resumption of the 1980s bull market, that chart isn't as likely to generate as big a buzz online as a supposed pre-Depression cliff-dive. Fundamentals differ between eras; for example, monetary policy is far looser than it was in 1929.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

But the main reason to ignore this one is that it doesn't compare apples with apples: the scales are different. The Dow's move in the 1920s was far bigger in percentage terms. Look at both in percentage terms (the bottom chart) and the spooky similarity disappears. There are several reasons to be wary but this isn't one of them.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.