The 2000-01 Nasdaq Bear Market vs.1929 Crash

March 7, 2001

After a couple of years of historic gains, the Nasdaq has suffered a devastating bear market in 2000 and 2001. For the last year we have been comparing this bear market to other bear markets from the past. 

But as the Nasdaq has ground down lower, we are left with only one comparison...the the great crash of 1929.

This chart shows the current Nasdaq bear market compared to the Dow Jones Industrials in 1929:

Nasdaq bear market vs 1929 Dow Industrials

The black line shows the Dow bear market that started on September 3rd, 1929. After that drop, the Dow didn't make it back to its highs until 1954!!

The magenta line is the Nasdaq bear market that started on March 11th, 2000.

A few explanations about this chart. The lines show the percentage drop from the highs made before each bear market started. 

The numbers across the bottom are the number of days that have passed since the market top. In the case of the Dow, we are showing approximately 2600 trading days (over 10 years) from the high in September, 1929.

As you can see, the Nasdaq bear market is following in the footprints of the 1929 Crash. Hopefully it will not last anywhere near as long.

Here is a closer look: 

Close Up: Nasdaq bear market vs 1929 Dow Industrials

Once again, this chart shows the percentage drop from the highs. As you can see, the Nasdaq bear market is now actually ahead of pace that the 1929 Crash set.

To give a bit more perspective, we backed up the chart to show a portion of the rally up to the highs that preceded these bear markets:

The Top: Nasdaq bear market vs 1929 Dow Industrials

As you can see, the rise in the Nasdaq in the three years before the top was far steeper than the rise in the Dow. What this means for the future is unclear. But there were clearly some huge excesses in the Nasdaq in the years leading up to the March, 2000 top.

For our final study, we decided to look at some past bear markets the Nasdaq has suffered through:

Current Nasdaq Bear Market Compared to Past Nasdaq Bear Markets

We built this chart the same way as the charts above, with percentage change plotted against the length of the bear market (measured in days).

One thing jumps right out. The current bear market is the worst for the Nasdaq since the bear of 1973-1974. And this decline has been more abrupt than any other (except possibly 1987).

Here are some stats on the bear markets:

  Percent decline Length (in days)
1973 -59.9% 473 days
1983 -31.5% 280 days
1987 -35.9% 45 days
1989 -33.0% 259 days
2000-01 (so far) -58.1% 247 days

The length is measured from the high to the low. The percent decline is on a closing basis, from the high to the low.

It is tough to draw any conclusions from that last chart and table, other than the fact that this is clearly a historic bear market. In terms of percentage decline, it is right up there near the top. In terms of duration, we might have a ways to go.

LowRisk Market Analytics
http://www.lowrisk.com

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