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100 years of Market Cycles

Market Analysis


1923 Market Correction

The 1923 market correction occurred during the 1922-1929 bull market with the market losing 18% over a 7-month period.

Market corrections are similar to bear markets, but are less severe. For the purposes of this analysis, bear markets have a minimum decline of 20% over a minimum period of six months (most last for a year as a minimum) with at least one bear rally (which are short rallies within a bear market).

Since this market cycle lost 18% over a 7-month period and did not have any bear rallies, this cycle is more accurately referred to as a market correction rather than a bear market.

Charts from stockcharts.com are used to analyze all of the market cycles that have occurred over the last hundred years. Analyzing the market cycles with charts gives stock investors a visual representation of how the stock market moves over time.

The Dow Industrial Average is used to analyze the 1923 market correction and all market cycles prior to 1957 (The S&P 500 index was formed in 1957 and all market cycles from 1957 are analyzed using the S&P 500 index).

100 Year Market Chart

The following monthly 100-year bar chart shows the 1923 market correction which occurred during the 1922-1929 bull market.

Chart 100yr: 1923 Market Correction

The 1923 market correction on a 100-year chart for the Dow Industrial Average plotted as a monthly bar chart.

As can be readily observed from the long-term 100-year market chart, the 1923 market correction is just one of many corrections and bear markets that have occurred over the last one hundred years.

The 100-year market chart also shows a 240-month simple moving average which has spent most of the last hundred years trending upwards. This shows that over the long-term the market has broadly continued higher as the moving average followed the Dow Industrial Average higher.

20-year Market Chart

The following chart shows the 1923 bear market on a 20-year chart with the Dow Industrial Average plotted as a monthly bar chart.

Chart 20yr: 1923 Market Correction

The 1923 market correction on a 20-year chart for the Dow Industrial Average plotted as a monthly bar chart.

A 12-month simple moving average is also plotted on the 20-year market chart. The 12-month moving average is a useful indicator used in Technical Analysis for highlighting market cycles.

As the 20-year market chart shows, the 12-month moving average turned down during the 1923 market correction, while the moving average spent most of the 1922-1929 bull market sloping upwards.

The 1923 market correction was really nothing more than a larger than normal pullback and only temporally paused the massive bull market of the roaring 1920s.

Most investors new to the stock market are under the impression that the stock market only moves in the direction of the current market cycle.

In reality, the stock market moves in cycles and alternates between bull markets (where stock prices broadly increase) and bear markets (where stock prices broadly decline).

Fortunately for investors, bull markets are usually longer than bear markets. This means that stock prices spend more time increasing in value than they do losing value.

Bull markets last anywhere from two years to around a decade, whereas bear markets are shorter and usually last a year or two and sometimes three.

5-year Market Chart

The 1923 market correction is shown again with a shorter time-frame on a 5-year chart plotted as a weekly bar chart.

Chart 3yr: 1923 Market Correction

The 1923 market correction on a 5-year chart for the Dow Industrial Average plotted as a weekly bar chart.

The shorter time-frame provides more detail. As the chart shows, the 1923 market correction occurred during the 1922-1929 bull market. The Dow Industrial Average lost 18% over a 7-month period.

Market Chart: Rallies and Pullbacks

The 1923 market correction is shown again with a 5-year line chart and two moving average indicators.

Chart MA: 1923 Market Correction

The 1923 market correction on a 5-year chart for the Dow Industrial Average plotted with a line chart and two moving average indicators.

The above line chart for the Dow Industrial Average shows a 52-week (long-term) and a 12-week (short-term) simple moving average.

The 52-week moving average (purple line) followed the market correction from the 1922-1929 bull market lower.

The 12-week moving average (orange line) broadly identifies the rallies and pullbacks that occurred.

The stock market sold down steadily from march 1923 (noted on the chart as the first RH - which stands for Relative High) and bottomed in October 1923 (noted on the chart as the 2nd RL - Relative Low).

While the 1923 correction looks like a pullback on the chart, the reason it's considered to be a correction is that the market pulled back for seven months. This is a very long time for a pullback, which usually last from a month up to three or maybe four months.

For comparison, the chart also shows the pullback that occurred early in 1924 which lasted four months and the severity of this pullback was more typical of market pullbacks (compared to that from the 1923 correction).

The 1930-1931 bear market finally ended the 1922-1929 bull market, whereas the 1923 market correction was merely a more severe pullback within that bull market.