2020 vs 1929: Similarities and differences


History has shown that every financial crisis is different from previous ones, in aspects of conditions, catalysts and market response. However, the 2020 stock market environment strongly resembles the 1929 market with equities rallying, further widening the gap between fundamentals and the valuations, while the real-economy weakens.

In this post we explore similarities and differences between 1929 and 2020. We leave you to make your own judgement.


Equity rally A 27% per year rally from 1921 to 1929. After crash of Oct 1929, 30% bear market rally that lasted 5 months. A year after prices dropped below 1928 levelsa 14% per year rally from 2009 to 2020. A 45% rally in 5 months following the pandemic sell-off
SpeculationWide speculation in the stock market as a result of high unemployment low wages, the proliferation of debt, a struggling agricultural sector and an excess of large bank loans that could not be liquidated.Extensive growth of retail platforms, commission free schemes and notion that “stocks always go up” as a result of FED support.
Weakening economyAfter the initial sell off in Oct 1929, weak economic data kept rolling until the fall of 1930 where the market finally sold off below the 1928 levelsSynchronized global slowdown by the end of 2019. Effect further accelerated by Covid-19 in 2020
Earnings recessionOnly after the crash we saw drop in year-on-year earnings. Signs of fall in earnings even before the pandemic.
ProtectionismSmoot-Hawley Tariff act exacerbated the depression. US imposed tarriffs on 20,000 goods.This is a cornerstone of Trumps policy, unclear whether it has reduced imports to the cost of the US economy
UnemploymentSlow rise on unemployment in 1929Large and abrupt shock. Post Covid recovery seems unclear (e.g. social distancing)


Bank failuresLarge bank failures as many banks were not covered by the federal reserve system. Run-on-the-banks exacerbated the recessionBanking system is stronger, all banks under the FED
LeverageA retail investor would only need to pay 10% of a stock and the other 90% was financed by the bank. For every 1$ loan, 0.5cents was to buy stocksBrokers nowadays are better regulated and use smaller leverage
Policy responseIt took too long for interest rates to come down (from 6% to 2%, around 1.5 years).Immediate action with significantly lower rates and massive liquidity to the system.

Useful references:

Smoot-Hawley tariff: https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act

China–United States trade war: https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act

Investopedia: https://www.investopedia.com/terms/s/stock-market-crash-1929.asp

Wall street crash: https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

History: https://www.history.com/topics/great-depression/1929-stock-market-crash

What caused the crash: https://www.history.com/news/what-caused-the-stock-market-crash-of-1929

Ben Bernanke: https://www.federalreserve.gov/BoardDocs/Speeches/2002/20021015/default.htm