Correlation does not equal causation, of course. And Greenhaus dismisses the chart, which seemingly implies we’re on track for a harrowing 1929-esque market crash.
“Without getting too personal, ‘chart overlaying’ is lazy and this is no less so,” he said. “But it does remind us that as much as everyone thinks everyone else is ‘all bulled up,’ these views still persist and have shown no indication they are going away any time soon.”
It appears that this chart originated from a Nov. 21 note published by Miller Tabak’s Andrew Wilkinson.
Unfortunately, the folks circulating it have completely missed Wilkinson’s point, which is basically right in line with Greenhaus’.
“It is true that the two time series carry remarkable similarity,” wrote Wilkinson his note. “So we dug deeper to measure the relative movement between the moves.”
Wilkinson normalized the chart, meaning he compared the actual percentage moves of the index during the two periods. Here’s Wilkinson:
By normalizing the move to the respective start dates we can create a rather different and more favourable picture for the current run. The stock market ran up 80% prior to the crash of 1929 before eroding two years’ worth of gains.
Looking at the relative position for today’s rally leaves the S&P 500 index higher by only 27% after a comparable period of its recent rally. The comparison to the late ’20’s experience suddenly loses its magic in this light and helps roll back accusations that the market is running on vapors instilled by the Fed and that valuations are frothy.
As you can see in Wilkinson’s normalized chart (which we recreated below), today’s rally is much more tame than the depression-era rally.
Yes, chart overlay can still be lazy, but Wilkinson certainly wasn’t being lazy.