Coca-Cola , Archer-Daniels and Deere should like this history lesson.
Even poor students of history know it never exactly repeats itself, but we all have been scratching the past for clues to guide us though the current harrowing times. So here's a historic analysis I think you'll find particularly interesting.
Think back to 1929, and you immediately think stock market crash. Ouch. Ok, that's similar to now. Next, think ahead two years into the future (that would be 1931). By analyzing stock performance, you'll see an interesting picture of investor behavior. Michael Painchaud, Director of Research and Principal at Market Profile Theorems did just that and he thinks some of these lessons are still relevant.
Painchaud looked at stocks as they made new highs after the 1929 crash. All three of those NYSE-listed stocks mentioned above were on a list of stocks that made new highs within two years of the 1929 crash. The 1929-'31 list, attached below, contains some other names you will know -- Federated Department Stores and U.S. Steel. There are others you maybe never heard of (Raybestos-Manhattan?), and some you'll be surprised by (Exchange Buffet, a vending machine cafe).
There's a heavy representation of food companies, industrials and manufacturing. Three movie companies made it too, and some old reliable utilities. You will notice that financial companies did not make the list.
"The lesson is obviously that investors had gone very defensive. Firms which tended to provide products and services which were at the very basic level of the economy did well, and there wasn't too much room for anything else," he said. But I note they bought entertainment names, too. (Do movies then = iPods, HDTV, and videogames now?)
Also, co*ke wasn't the defensive name it is now. You have to assume it was more about growth.
You'll also note that there are quite a few preferred stocks. It makes sense, Painchaud said. "It's part of a very conservative investment view, and buying yield is a hedge," he said.
There are three miners, but Painchaud points out they are not defensive gold plays as you might think. "They were producing silver. It very well could have been the world was stockpiling silver for munitions for the coming war," he said.
So what about now? There was no technology-laden Nasdaq index in 1929, and Painchaud notes the biggest tech company of the time, RCA, didn't make his list. But I wondered if — as the 1920s clearly still showed the strains of America's move to an industrialized nation from a more agrarian one — could we compare that era to our transition to the high-tech era (using the 1980s lexicon)? Could tech names be the equivalent of some of the industrial names on Painchaud's list?
He agreed with my theory, but added that the tech names that are most basic may be the ones that recover first. If you use the lesson of 1929, he says you would conclude semiconductors might be on the list. That also correlates with something else he's seeing in his research: "In terms of insider activity, the semiconductors look like a buy as a group."
History doesn't always repeat itself. Your ETF wasn't there in the 1930s, and your broker wasn't putting his orders through on a computer... but some of the same psychology seems to be at work.
Painchaud's 1929-'31 list:
(divided by industry)
Construction Materials
U.S. Gypsum
Raybestos-Manhattan
Consumer Discretionary
Bulova Watch
Consumer Products - Tobacco
American Tobacco "B"
Ligget and Myers "B"
Electrical Transmission
American Superpower
Energy/Oil
Standard Oil Co. (NJ)
Entertainment
Columbia Pictures
Paramount Pictures
Loews
Food Processors
Archer-Daniels Midland
Coca-Cola
Corn Products Refining $7 prfd
International Salt
Libby, McNeill and Libby
Swift International
Industrial
American Machinery Foundry
Warren Foundry and Pipe
General Refractories
U.S. Steel
National Can
Vanadium Corp. of America
New Jersey Zinc
Novadel-Agene
Worthington Pump
Superheater
Continental Diamond Fibre
Machine Tools
Bullard Co.
Manufacturing
Foster Wheeler
Thatcher Manufacturing
Ingersoll-Rand
Deere and Co.
American Chain and Cable
Mining
Lake Shore Mines
Dome Mines
Homestake Mining
Conglomerate
Atlantic Gulf and Western Industries Pfd.
Electrical Wiring
Driver-Harris
Restaurants
Exchange Buffet
Office Equipment
Addressograph-Multigraph
Oil Field Equipment
Dresser Industries
Pharmaceuticals
Sharp and Dohme
Publishing
Curtis Publishing $7 pfd
Real Estate
Equitable Office Building
Texas Pacific Land Trust
Retail
Federated Department Stores
Transportation RR
Missouri-Kansas-Texas
Missouri-Kansas-Texas pfd
N.Y. Chicago and St. Louis pfd
Utilities
Electric Power and Light
American and Foreign Power $7 pfd
American Power and Light $5 pfd
Electric Power and Light $7 pfd
Questions? Comments? marketinsider@cnbc.com
This article delves into historical stock market patterns post the 1929 crash and attempts to draw parallels to the present economic climate. It draws upon the research of Michael Painchaud, analyzing stock performances and investor behavior during the period following the crash.
Painchaud's examination highlights the types of stocks that made new highs within two years of the crash. Notably, three NYSE-listed companies—Coca-Cola, Archer-Daniels, and Deere—were part of this list. The period witnessed a shift in investor sentiment toward more defensive investments, primarily focusing on industries related to essential goods and services.
Here's a breakdown of the concepts used in the article:
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Market Analysis Post-1929 Crash: Examines stock performances after the stock market crash of 1929 and identifies companies that recovered and thrived within two years.
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Investor Behavior: Shows a shift towards defensive investments, favoring companies involved in basic necessities, including food, industrials, manufacturing, utilities, and entertainment.
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Specific Stocks and Industries:
- Consumer Discretionary: Highlighted by companies like Bulova Watch, tobacco companies (American Tobacco, Ligget and Myers), and entertainment companies (Columbia Pictures, Paramount Pictures).
- Food Processing: Companies like Archer-Daniels Midland, Coca-Cola, Corn Products Refining, and others were performing well.
- Industrials and Manufacturing: Included U.S. Steel, Deere and Co., General Refractories, Vanadium Corp. of America, among others.
- Mining: Featured companies producing silver (Lake Shore Mines, Dome Mines, Homestake Mining) possibly for wartime munitions.
- Utilities: Consisted of Electric Power and Light companies and American and Foreign Power.
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Investment Strategies:
- Investors leaned towards conservative options like preferred stocks, focusing on stable yields as a hedge.
- Emphasis on basic, essential products/services for potential growth.
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Comparison to Current Times:
- Consideration of parallels between the post-1929 period and the present, especially regarding the transition to high-tech eras (e.g., comparing industrial names to potential tech recoveries).
- Discussion about tech companies potentially recovering similarly to how industrial companies did post-1929.
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Insider Activity and Semiconductors: Insider activity analysis suggests semiconductors as potential buy options, aligning with a potential recovery path akin to the historical recovery of certain industries post-1929.
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Limitations and Differences: Acknowledgment that while history can provide insights, there are distinct differences between the eras, such as technological advancements and changes in market mechanics.
The article serves as a reflection on historical market behaviors and attempts to draw valuable insights to potentially guide current investment strategies. It highlights the significance of understanding past market dynamics to navigate uncertain economic times.