Market graphs can tell very different stories depending on the particular timeframe.
I’m a very visual person. Any time I need to analyze something, I make a picture, either physically or in my own head. I can’t do mental math without having a mental piece of paper with mental numbers written on it. A series of numbers is not very useful to me… but blot those numbers on graph and I can easily see the trends.
Today I was listening to the Marketplace Podcast for my usual dose of business news. Of course, the talk was all about the recent financial mess. Since I was at my computer, I decided to check out the graphs for the S&P 500 (one of the best indicators for overall stock market performance in the U.S). I hadn’t kept up on them recently, so I thought it was a good time for some updated information.
The numbers and graphs themselves didn’t really impress me; they mostly followed what I’d been listening to for the past few days/weeks/years. What prompted my blog post was how different the graphs looked depending on the timeframe.
Follow along with me as I show you what I mean. A few notes first:
- All charts are courtesy Yahoo Finance. Their old charts are still the best ones out there IMO. Since I couldn’t figure out a way to lock them to a specific date, I’ve copied these particular instances directly to my site (Yahoo, please don’t sue me).
- For the latest charts, go to their S&P 500 page. There’s lots of graphing options there for your pleasure.
- You can click each graph for the full-sized version.
- All of these charts are on logarithmic y-axes. That means that they emphasize relative (percentage) gains, not absolute gains. This is important when understanding trends, especially over longer periods of time. Any amount of absolute change will mean different things depending on whether it’s applied to a large or small value.
- I’ve also added some example analysis of what each picture could represent, absent of outside context.
Past 1 Day
First of all, here’s the 1-day view (for Friday, November 21, 2008):
Based on this picture, you could say that the market had a great day, although it started out pretty mundane. But things are looking up.
Past 5 Days
Past 3 Months
Moving right along, here’s the past quarter-year:
There’s a clear downward trend. It’s a fairly straight line. There’s a few significant dips, but they’re followed by recoveries that bring it back to the main trend line. This is troubling.
Past 5 Years
This is the full history of the S&P 500 since its inception 50 years ago. Unfortunately Yahoo has no finer granularity between 5 years and max.
The trend here is clear: the stock market has been climbing at a pretty steady rate since the formation of the index. I have some additional notes:
- Regardless of the long-term trend, there’s lots of bumps along the way.
- I eyeballed the slope of the line between the start of the graph and 1995, and then extended that line to the current day. My imaginary line happened to match the current value of the S&P 500. With this analysis, you could consider the current crash to be a big correction from the much-higher-than-average growth that we’ve had since 1995 (especially before 2000).
- The biggest dip (2001-2003) is the one that follows the longest period of smoothness (1991-2000).
- The downward periods tend to be shorter and steeper than the upward periods. Each bump leands towards the right.
- The current downturn looks a lot like the triple-whammy we had in early part of the decade caused by the dotcom crash, 9/11, and the Enron/corporate accounting scandals.
- There’s other downturns too. Check out 1973-1975; the drop there it has a similar profile and depth to the one we’re in now. Note the hard floor around year-end. The recovery is interesting too: there’s a clear trend up, but it takes the rest of the decade to best the previous high.
- You may remember the huge crash of 1987 (I was 10 at the time; it was one of my first exposures to the financial world). Note the sharp spike; the steep slopes on both sides of the peak makes the event stand out like a thumbtack. Note that the market continued its climb afterward.
I don’t want to make too much of these graphs or my analyses. I think these are more “interesting” than “predictive”. But I do think that it’s good to see the difference perspective makes.