Dow Jones decline rate mimics Great Depression

Dow Jones Industrial Average has dropped more than 50 percent from its two-year high, mirroring the decline rate encountered during the Great Depression.

With the Dow Jones Industrial Average falling below the psychological watermark of 7,000 on Monday, investors may be wondering how it all stacks up against the stock market crash of the Great Depression.

It's not looking good.

In the here and now, the Dow has dropped 52.5 percent since its high of 14,279.96 on Oct. 11, 2007, to its low point of 6,779.62 during intraday trading on Monday. (Update 1:16 p.m. PST: At Monday's close it was 6,763.29, a drop of nearly 300 points from the previous close.)

And in taking a similar period of a year and five months in the late 1920s, it's a case of deja vu.

The rate of decline is mimicking that of the Dow during the Great Depression.

Back on September 3, 1929, the Dow hit a high mark of 381.17. And over a similar length of time, it fell 54.7 percent to 172.36 on January 2, 1931.

"It's very troubling if you have a mirror image," said Phil Dow, market strategist for RBC Dain Rauscher & James.

Helping to drive the Dow lower on Monday were tech titans IBM, which dropped 3.17 percent to $89.10 a share, and Hewlett-Packard which fell 3.72 percent to $27.96. Intel gave up 2.43 percent to $12.43 a share, while Microsoft gave up 1.80 percent to fall to $15.86 a share during intraday trading.

If the Dow continues to follow the rate of decline that it endured during the Great Depression, investors would have another year and four months before hitting rock bottom. Back in July 1932, the Dow fell 89 percent to 42.22 from its high.

RBC's equity strategist Dow said he believes distinctions exist between the current market malaise and that of yesteryear.

"There is an opportunity for a globally orchestrated recovery," Dow said. "This won't be the end of capitalism. At some point we'll reach the bottom in the housing market, people will start buying cars again, and inventories will be rebuilt."

 

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