The Century-Long Trendline: Are We Approaching Another 1929 or 2000 Moment?
As I stare at this monthly chart of the S&P 500, spanning nearly a century of market history, one thing becomes crystal clear: we're sitting at a critical juncture that could define the next decade of investing. The white ascending trendline you see connecting the major lows from 1929 through today isn't just a line on a chart—it's the backbone of American capitalism, the foundation upon which nearly 100 years of economic growth has been built.
But here's what's keeping me up at night: the question mark I've placed next to "2025 Major Cycle High?" isn't just technical speculation. Its rooted in some disturbing parallels to the two most devastating market crashes in modern history.
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The Ghosts of 1929: When Euphoria Meets Reality
Let's start with the granddaddy of all market crashes. The 1929 peak wasn't just a market top—it was the culmination of an entire decade of unprecedented speculation and excess. Sound familiar?
Back then, the "Roaring Twenties" were fueled by new technologies that promised to revolutionize everything. Radio, automobiles, electricity—these weren't just inventions, they were the artificial intelligence of their era. Investment trusts (the mutual funds of their day) were created faster than you could count them, and everyone from shoe-shine boys to bank presidents was playing the market.
The real killer? Margin debt. By 1929, investors could buy stocks with just 10% down, borrowing the rest. When the music stopped, the cascade of margin calls created a vicious cycle that took the market down 89% from its peak.
What strikes me most about 1929 is how few people saw it coming. The Federal Reserve had been raising rates to combat speculation, but instead of cooling things down, it created the perfect storm. High interest rates made the eventual crash more devastating because overleveraged investors had nowhere to hide.
The Dot-Com Déjà Vu of 2000
Fast forward to 2000, and we see history rhyming with a different beat. The dot-com bubble wasn't just about internet stocks—it was about a fundamental shift in how people valued companies. Traditional metrics like price-to-earnings ratios were thrown out the window in favor of "new economy" metrics like price-to-sales or, in some cases, price-to-eyeballs.
The concentration was staggering. Just like today's Magnificent Seven, a handful of technology companies dominated market returns. At the peak, the top 10 stocks in the NASDAQ represented an enormous portion of the index's total value. When those companies started to falter, the entire house of cards came tumbling down.
The Federal Reserve's response to the Asian Financial Crisis in 1998 and the Y2K concerns had created an environment of abundant liquidity. Sound familiar? Alan Greenspan's famous "irrational exuberance" speech in 1996 was actually four years too early—showing just how long markets can stay irrational.
2025: The Perfect Storm Brewing?
Now, let's talk about where we are today, because the parallels are both fascinating and terrifying.
Valuation Extremes: The current S&P 500 P/E ratio sits at approximately 27, while the 10-year cyclically adjusted P/E (CAPE) ratio is around 35—that's 67% above the historical average. We're in the 97th percentile of all historical valuations. In other words, only 3% of the time in market history have stocks been more expensive than they are right now.
Concentration Risk: The Magnificent Seven now represent 34% of the S&P 500's total market capitalization. That's nearly triple their 12% weighting in 2015. To put this in perspective, Microsoft alone is worth more than the entire Canadian stock market. This level of concentration means that the fate of the entire market rests in the hands of just seven companies.
Debt and Leverage: Here's where it gets really interesting. Margin debt, which peaked at $937 billion in 2021, has remained elevated at around $880 billion as of March 2025. While that's down from the peak, it's still historically high. More concerning is that margin debt as a percentage of market value is showing the same pattern we saw before previous major corrections.
Federal Reserve Policy: The Fed has been walking a tightrope, holding rates at 4.25%-4.50% while battling inflation that's proven stickier than expected. Jerome Powell's recent comments about increased risks of both higher inflation and unemployment sound eerily similar to Fed communications before previous major downturns.
The Human Psychology Factor
What makes this comparison so compelling isn't just the numbers—it's the psychology. In 1929, investors believed they were in a "new era" of permanent prosperity. In 2000, they believed the internet had fundamentally changed how businesses should be valued. Today, artificial intelligence is being positioned as the next transformative force that justifies any valuation.
The euphoria around AI reminds me of the electricity boom of the 1920s or the internet revolution of the late 1990s. Yes, these technologies were transformative, but that doesn't mean every company touching them deserved a premium valuation. Many of the companies that led the charge in previous technological revolutions either went bankrupt or became footnotes in history.
What the Chart is Really Telling Us
Back to that century-long trendline. It's held through the Great Depression, World War II, the stagflation of the 1970s, the savings and loan crisis, Black Monday, 9/11, the dot-com crash, the 2008 financial crisis, and the COVID-19 pandemic. It's been the ultimate backstop for American equity markets.
But here's the critical question: can it hold if we're truly at another major cycle high?
The distance from current levels to that trendline is massive—we're talking about a potential decline of 50-70% if we were to test it. That might sound extreme, but remember, the market fell 89% from 1929 to 1932, and the NASDAQ dropped 78% from 2000 to 2002.
What I'm Watching Now
The next few months will be crucial. I'm watching several key indicators:
Earnings Growth: The Magnificent Seven's earnings growth advantage over the rest of the market is narrowing. In Q1 2024, they grew earnings by 52% while the rest of the S&P 500 managed just 1.3%. By Q1 2025, that gap had narrowed to 21.4% versus 8.3%. When the leadership starts to falter, it often signals broader weakness ahead.
Credit Conditions: The spread between high-yield and investment-grade bonds is starting to widen. This is often one of the first signs that investors are becoming more risk-averse.
Market Breadth: Despite the headline indices reaching new highs, market breadth has been deteriorating. The equal-weight S&P 500 has significantly underperformed the cap-weighted version, indicating that the market's strength is increasingly concentrated in fewer names.
The Bottom Line
Are we at a 1929 or 2000 moment? The honest answer is that we won't know until we're looking back at it. But the setup is eerily similar to both previous occasions. We have extreme valuations, dangerous concentration, elevated leverage, and the kind of technological euphoria that has preceded major corrections in the past.
The century-long trendline has been the ultimate safety net for American investors. But if history is any guide, major cycle highs like 1929 and 2000 don't just test that trendline—they shatter it temporarily before eventually rebuilding from much lower levels.
As traders and investors, our job isn't to predict the future but to manage risk based on probability. And right now, the probabilities suggest we're closer to a major top than a major bottom. The question isn't weather we'll see another significant correction—it's when, and how severe it will be.
That century-long trendline will be there to catch us when we fall. But given how far we've climbed above it, the fall might be more painful than most people are prepared for.
The views expressed in this analysis are those of Gareth Soloway and Verified Investing. This content is for educational purposes only and should not be considered as investment advice.
