Lies, Damn Lies, and Charts

February 17 Weekly Market Update

A comparison of the S&P 500 Index in 1929 just ahead of the stock market crash to the performance of stocks from 2012 through today has been making the rounds on the internet. The implication by the bears is that stocks are poised for an epic crash.

This chart is a lot like the chart that went around in the fall of last year comparing 2013 to the stock market leading up to the 1987 crash. You can see in Figure 2 that it did not pan out the way the bears expected and stocks continued to rally. Unfazed by this, they have looked for another pattern predicting an impending crash.

One of the reasons that these “crash” charts are able to make their way around the internet almost every year that stocks go up is that charts can lie. It is unfortunate, but true. The easiest way to make a chart lie is to have two different scales for the data being compared. Not all charts that do this are lying, but be very careful taking them at face value. Another look at that 1929 chart with both 1929 and 2014 on the same percentage scale illustrates this. Figure 3 shows that the comparison becomes a lot less convincing and a lot less fearsome. Thankfully, these charts debunking the crash charts often make it around the internet as well.

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