Investors were in jubilant mood last week. A wave of optimism carried the Dow Jones Industrial Average above 17,000 for the first time in the index's history. As John Stepek noted, pretty much everyone admits that stocks aren't cheap, but at the same time, "they can't see what might happen to rattle the markets".
If you have money tied up in the Dow, you may well be smiling. But in between toasts, spare a thought for your predecessors 82 years ago today because it was on 8 July 1932 that the Dow hit rock bottom during the Great Depression, closing at just 41.22 points.
And if you look closely, the years leading up to that dismal day aren't so very different from today.
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This was the Roaring Twenties'. Jazz clubs in Paris and New York kept time to the optimistic buzz as economies in the West boomed. Flapper girls danced the Charleston and credit was cheap. These were halcyon days of careless abandon. If you weren't on the make, you were missing out.
The bull market was in its ninth year by late 1929. On 3 September, the Dow closed at a record high of 381.17. Nobody could see an end to the good times. Sound familiar?
But of course, the good times did end. The Wall Street Crash struck and on 29 October Black Tuesday the Dow closed at 230.07. Traders staggered out into the streets nursing lost fortunes. Greed turned to despair.
The 1930s brought no respite, and the Dow continued to slide. By 1932, the index had lost 89% of its value, hitting 40.56 during the day on 8 July. It wasn't until 1954 that the Dow returned to its pre-Crash high (adjusted for inflation).
Fast-forward to today and the Dow has hit a new high. Trading on a price/earnings (p/e) ratioof around 17, the Dow looks expensive. But many investors just can't see an end to the good times.
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