The 2000-03 Nasdaq Bear Market vs.1929 Crash updated 01/29/2003
After years of historic gains in the late 90's, the Nasdaq has suffered a devastating bear market in 2000, 2001, and 2002. And right now, 2003 is a big question mark. We began comparing this Nasdaq bear market to the the 1929 bear market in mid 2000. In the last couple of years, the financial press has finally started making similar comparisons. However, our charts are completely original, and they have been for the last two years.
This chart shows the current Nasdaq bear market compared to the Dow Jones Industrials in 1929:
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.
There are several immediate observations that jump right out on the above chart. The first is the startling similarity between the current Nasdaq bear market and the 1929 crash. A second observation is that the pace of this bear market has been flirting with the pace of the 1929 crash right from the beginning.
In fact, in the first year of the current crash, the pace was actually ahead of the pace of the 1929 market. But perhaps the scariest thing about this chart is just how much lower and how much longer a bear market can go.
Before we go on, let's have a few explanations about this chart. The lines show the percentage drop from the highs made before each bear market started. The numbers on the left show the percentage of the market high. So the 40% line on the chart represents a 60% drop from the all time high.
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 very closely in the footprints of the 1929 Crash.
Here is a quick comparison of the current Nasdaq bear market and the 1929 crash:
Percent decline Length (in days) 1929 Dow -89.2% 714 days 2000-03 (so far) -77.8% 648 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. The length is in market days...there are approximately 250 market days per year.
Let's take a closer look at this comparison to the 1929 market...this is a much shorter time frame, covering just over a year's time:
Once again, this chart shows the percentage drop from the highs. 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:
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.
If the current bear lasts as long as the 1929 bear market, the market would bottom in January, 2003. A couple of years ago when we published that, it seemed pretty scary. Now we can only hope.
To get some additional perspective, we looked to other bear markets for comparisons. The Nikkei bear market in Japan has been particularly devastating, and that market is still making new lows more than 11 years after the all time highs in 1989. For a comparison of the current Nasdaq bear market with the Nikkei, click here.
We also went back and looked at past bear markets that the Nasdaq has suffered through. This chart shows the current bear market compared to four previous bears:
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 now the worst bear market ever for the Nasdaq by a long shot, both in terms of the percentage drop and the length of time. And it was also the most abrupt by a long shot.
Here are some stats on past Nasdaq bear markets:
Percent decline Length (in days) 1973-74 -59.9% 473 days 1983 -31.5% 280 days 1987 -35.9% 45 days 1989 -33.0% 259 days 2000-03 (so far) -77.8% 648 days
As above, the length is measured from the high to the low. The length is in market days...there are approximately 250 market days per year. The percent decline is on a closing basis, from the closing high to the closing low.
