The idea of a looming market crash as catastrophic as the Great Depression gets thrown around every now and then—whether it’s dramatic headlines on Twitter, random CNBC pundits, or a sensation article on Business Insider.
It quite often is mixed in with smart-sounding lingo like "PE Ratios are too high." Therefore, the market is overvalued, drawing eerie parallels to 1929.
This financial media often strikes a fearful chord in many people. In fact, many boomers today had parents that were raised in the wake of the great depression, and the ghost of that tough time, in the form of culturally transmitted aversion to markets, are still alive in many today.
But are we really on the brink of a financial collapse where we stand right now?
Here is my take: We had cars in 1929, and we have cars now. We had markets in 1929, and we have markets today. These are two very different things. In this newsletter, I make the case that financial markets have changed quite a bit from back then, and many of these developments contribute to a greater level of stability than in this early 20th century era, making the likelihood of a 1929-style collapse highly remote. This historic period surrounding the great depression carries many lessons, but to flat out avoid the stock market because it fell back then is like avoiding using a stove because you got burned once when the burner was left on.
Today's newsletter hopefully will leave you feeling a bit more discerning and aware of market dynamics, but it is important to remember Investing does carry risk. You should not use this newsletter itself as advice. Consult someone familiar with your situation, or a variety of sources before making a personal decision.
So how are markets different now from back then?
1. Margin Practices: Then vs. Now
In 1929, margin trading was out of control. Investors could buy $100 of stock with just $10, creating extreme leverage. When stock prices dropped, it triggered mass “margin calls.” Essentially if your investment drops 10% while using 90% borrowed "margin" money, your rate of return is -100% and you are wiped out because the bank forces the investor to sell all your holdings to recoup the money they lent out. When there is a culture of "margin," everyone thinks it's a good idea and everyone invests with extremely high margin. This can seem smart if things are going up, but when markets finally correct, smaller moves can cause waves of investors forced to sell resulting in a domino effect of further margin calls and subsequent selling and downward price pressure. This is part of what happened in 1929 that led to such a significant crash.
Today? Regulations like Reg T require investors to put down at least 50% to trade on margin. This reduces the systemic risk of over-leveraged positions. While speculative trading still exists, the system is better equipped to handle market dips without spiraling into chaos.
2. Market Depth and Participation
Back then, only about 10% of Americans owned stocks, mostly wealthy individuals. This made the market shallow and fragile—when a few big players panicked, there weren’t enough buyers to stabilize prices.
Today, over 60% of Americans own stocks, often through 401(k)s and other retirement plans. This deeper pool of investors provides resilience. Diverse opinions—optimists, pessimists, short-term traders, and long-term investors—all come together on the exchange and take opposing sides. The depth of the market is enormous compared to 1929. The dynamics of the sheer size and diversity of types of participants in markets today contributes to a potentially more stable market.
3. Banking Stability and FDIC Insurance
The 1929 crash wasn’t just about stocks. Much of the panic that occurred was concurrent with a massive banking collapse. Hundreds of banks failed, wiping out people’s savings and eroding trust in the system. There was no safety net.
It's unlikely anyone would trust the stock market to preserve their capital when their most trusted banks were collapsing and going under by the dozens. This contributed to a systemic panic and run on markets and banks. The likelihood of this happening again to this magnitude is so small in my view.
Fast forward to today: FDIC insurance protects deposits up to $250,000, ensuring that a bank’s failure doesn’t cause panic in the financial markets. This foundational stability gives consumers a much higher level of confidence. keeps today’s markets far removed from the fragile system of 1929.
4. The “Relentless Bid” of 401(k)s
In 1929, investing was mostly a one-time decision. There wasn’t a consistent flow of money into the market.
Now, systems like 401(k)s create automatic, ongoing investments as part of millions of workers’ paychecks. This steady injection of capital—often referred to as the "Relentless Bid"—acts as a potentially stabilizing force, providing a baseline demand for stocks that is likely to continue even during downturns.
What This Means for Investors
Does this mean markets won’t ever correct or experience declines? Of course not. Volatility is part of the game. But comparing today’s markets to 1929 overlooks the very significant developments progress we’ve made in how markets work.
So, if you’re feeling rattled by dramatic headlines or social media chatter, take a breath. The system is more robust, diversified, and regulated than ever before.
Is the Market Heading for a 1929-Style Crash?
As always, the key is to maintain a long-term perspective. Don’t let fear drive your decisions.
If you found this helpful, subscribe to the newsletter for more information, and check us out at www.parkmountfinancial.com
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