90 Years after the Big Stock Market Crash

Crash prophets who are drawing parallels with October 1929 are back in business. A dangerous mixture of excessive optimism over the strong rise of industrial production for several years, leveraged credit speculations, and the “Fear of Missing Out” (FOMA) pushed the Dow Jones in October 1929 at dizzying heights. First, on October 24, 1929, a collapse of 11% occurred, followed by another 90% (!) during the following three years. It needed almost a quarter of a century to lift the index to previous highs again.

Today’s situation is not comparable with that historical development. Complex rules and security measures, which have been built in since the financial crisis of 2008, as well as highly sensitive central banks which would take concerted actions, if necessary, provide the required stability. However, it is important to be wary and vigilant. Besides the geopolitical uncertainties, the most considerable market risks can be seen in the US-Chinese trade conflict alongside with the associated negative impacts on industrial production and investments. The markets continue to see a continuous stable consumer confidence in the industrial countries based on relatively low unemployment rates and high disposable income as very positive. 

Besides, neither the American President (in the reelection cycle) nor the General Secretary of the Chinese Communist Party (before the party’s celebration of the 100th anniversary of its foundation in 2021) should be interested in a further deterioration of the trade conflict and thus be rather open to compromises. Additional strong monetary support will continue to come from the central banks. 

Overall, the ratings of selected shares should reach new levels. As usual, apart from necessary portfolio diversification, the analysis and selection of the underlying business models and investment trends are decisive. 

Crash prophets who are drawing parallels with October 1929 are back in business. A dangerous mixture of excessive optimism over the strong rise of industrial production for several years, leveraged credit speculations, and the “Fear of Missing Out” (FOMA) pushed the Dow Jones in October 1929 at dizzying heights. First, on October 24, 1929, a collapse of 11% occurred, followed by another 90% (!) during the following three years. It needed almost a quarter of a century to lift the index to previous highs again.

Today’s situation is not comparable with that historical development. Complex rules and security measures, which have been built in since the financial crisis of 2008, as well as highly sensitive central banks which would take concerted actions, if necessary, provide the required stability. However, it is important to be wary and vigilant. Besides the geopolitical uncertainties, the most considerable market risks can be seen in the US-Chinese trade conflict alongside with the associated negative impacts on industrial production and investments. The markets continue to see a continuous stable consumer confidence in the industrial countries based on relatively low unemployment rates and high disposable income as very positive. 

Besides, neither the American President (in the reelection cycle) nor the General Secretary of the Chinese Communist Party (before the party’s celebration of the 100th anniversary of its foundation in 2021) should be interested in a further deterioration of the trade conflict and thus be rather open to compromises. Additional strong monetary support will continue to come from the central banks. 

Overall, the ratings of selected shares should reach new levels. As usual, apart from necessary portfolio diversification, the analysis and selection of the underlying business models and investment trends are decisive.