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Fed Action Behind Ten Largest Market Rallies


When Dow jumps, government says how high.

On October 14th, after the prior day's 11% rise in the Dow, the Wall Street Journal provided a list of the top 10 biggest percentage gains in DJIA history.

In an effort to identify key themes, I looked at the underlying causes for the rallies indentified on the list.

What I found particularly interesting was this: Other than the rally on November 14, 1929 -- which I assume was a function of selling exhaustion as much as anything else -- every other one day surge appears to follow on some form of federal action/intervention.

(As an aside, I would note that the trend continues to this day, with both the top-10 rally on October 13th and the one on the 28th resulting from the US government's purchasing stock in financial institutions and intervention in the foreign exchange markets (particularly $/¥) and an all-but-certain cut in the Fed Funds rate, respectively.)

Finally, and not surprisingly, while many of these days represent a bottom to the market, none corresponds to the bottom" of a broader market cycle.

The Top 10 Biggest Percentage Gains in the Dow Jones Industrial Average

March 15, 1933 - up 15.34%
The first trading day after the bank holiday on March 6th and after the passage of the Emergency Banking Act on March 9th; it "marked a turning point in expectations for economic recovery."

October 6, 1931 - up 14.87%
Followed the October 5th announcement, by President Hoover, of a proposed conference with members of Congress on the country's economic problems.

October 30, 1929 - up 12.34%
The day after Black Thursday. Per Laurence Stern of The World:

"After the stock market had come crashing down again in a veritable deluge of forced and hysterical liquidation, word sped through the financial district last evening that the largest banks in the city were prepared to exert their organized power this morning to prevent further disaster. Arrangements described as "fully adequate" were completed at a conference at the offices of JPMorgan at Broad and Wall Streets...

"Although no formal statement was issued, it was the consensus of those at the meeting that the worst of the liquidation is over and that a natural demand for investment stocks now available on the bargain counter should go far toward an immediate restoration of trading stability."

September 21, 1932 - up 11.36%
The day after the Reconstruction Finance Corporation announced it was expanding its focus to include aid to farms.

October 21, 1987 - up 10.15%
The day after the market bottomed on the 20th during the 1987 crash, when circuit breakers on the CME and CBOE were triggered.

August 3, 1932 - up 9.52%
The day after Secretary of Commerce Robert Lamont submitted his resignation.

February 11, 1932 - up 9.47%
The day after Secretary of the Treasury Andew Mellon submitted his resignation.

November 14, 1929 - up 9.36%
The day after the failed re-test of the October crash. (Couldn't otherwise identify a specific event contributing to the rally.)

December 18, 1931 - up 9.35%
The day after the US government announces it will provide financial assistance to the railroads.
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