United States bear market of 2007–2009

Last updated
US Bear market of 2007-2009 2007-2009 Bear Market.png
US Bear market of 2007–2009

The US bear market of 2007–2009 was a 17-month bear market that lasted from October 9, 2007 to March 9, 2009, during the financial crisis of 2007-2009. The S&P 500 lost approximately 50% of its value, but the duration of this bear market was just below average due to extraordinary interventions by governments and central banks to prop up the stock market.

Contents

The bear market was confirmed in June 2008 when the Dow Jones Industrial Average (DJIA) had fallen 20% from its October 11, 2007 high. [1] [2] [3] [4] [5] This followed the United States bull market of 2002–07 and was followed by the United States bull market of 2009–2020

The DJIA, a price-weighted average (adjusted for splits and dividends) of 30 large companies on the New York Stock Exchange, peaked on October 9, 2007 with a closing price of 14,164.53. On October 11, 2007, the DJIA hit an intra-day peak of 14,198.10 before starting to screech for no reason. - this is subjective, there was a reason, it wasn't random.

The decline of 20% by mid-2008 was in tandem with other stock markets across the globe. On September 29, 2008, the DJIA had a record-breaking drop of 777.68 with a close at 10,365.45. The DJIA hit a market low of 6,469.95 on March 6, 2009, having lost over 54% of its value since the October 9, 2007 high [6] [7] The bear market reversed course on March 9, 2009, as the DJIA rebounded more than 20% from its low to 7924.56 after a mere three weeks of gains. [8] After March 9, the S&P 500 was up 30% by mid May and over 60% by the end of the year.

Index levels

DateNasdaq% Chng.§S&P 500% Chng.§Dow Jones% Chng.§Notes
January 3, 20072,423.161,416.6012,474.52
October 9, 20072,803.91+15.71%1,565.15+10.49%14,164.53+13.55%The day the DJIA and S&P 500 peaked.
October 10, 20072,811.61+0.27%1,562.47−0.17%14,078.69−0.61%The day the NASDAQ peaked.
January 2, 20082,609.63−7.18%1,447.16−7.38%13,043.96−7.35%
June 27, 20082,315,63−11.27%1,278.38−11.66%11,346.51−13.01%The day the bear market declared.
November 4, 20081,780.12−23.13%1,005.75−21.33%9,625.28−15.17% Election day
January 2, 20091,632.21−8.31%899.35−10.58%9,034.69−6.14%
January 20, 20091,440.86−11.72%804.47−10.55%7,949.09−12.02% Inauguration of Barack Obama
March 9, 20091,268.64−11.95%676.53−15.90%6,547.05−17.64%The day the DJIA, S&P 500 and NASDAQ bottomed.
October 9/10, 2007 to March 9, 2009−1,542.97−54.9%−888.62−56.8%−7,657.49−54.1%Cumulative change (from peak to bottom)

[9] [10] [7]

§Values represent percent change from previous date listed in table.

Opinions regarding the cause

During the bear market a heavy debate ensued as to whose fault the falling market was. The political parties were heavily divided during this period. [11] For the most part there were three camps: ones that simply blamed the economy, others that wanted to pin the passing Bush Administration and others that wanted to push the blame on the newly arriving Obama Administration.

Blaming the economy

In February 2007, a coming recession and bear market was predicted by Paul Lamont due to a growing debt bubble, the housing bubble and lack of car sales. [12]

High oil prices have impacted global economic growth, causing the Dow's 12th bear market since 1962 and the first since 2002 according to The Washington Post . [13]

Tom Petruno of the LA Times points out that "the U.S. stock market meltdown this year isn't happening in isolation. Major European stock markets also are down more than 20% since Jan. 1. In Japan, the Nikkei index hit a 26½ -year low this week.” [14]

Dick Meyer of NPR believes that "the idea of blaming one person for the downfall of the economy with a gross domestic product of about $14 trillion, powered by 300 million people and engaged in complex global commerce is nuts — whether that person is Bush, Obama, Alan Greenspan, Bernard Madoff, Osama bin Laden or the editors of opinions at The Wall Street Journal." [15]

Michael J. Panzner, author and 25-year Wall-Street veteran, says that "the real reasons behind the sell-off ... include the bursting of history's biggest housing bubble, which triggered a shockwave of wealth destruction that has wreaked widespread havoc throughout the economy, as well as the unraveling of a multi-trillion-dollar financial house of cards built on greed, ignorance, and fraud." [16]

Blaming the George W. Bush administration

Former United States Secretary of Labor Robert Reich said the fall in stock prices since Obama's inauguration was caused by the policies of former President George W. Bush, and that the housing and financial bubbles, as well as the decline in the stock market, all began under Bush's Presidency. [17]

Justin Fox of Time magazine pointed to eight major economic mistakes George W. Bush made: 1) A return to deficit spending, 2) Iraq, 3) Tax cuts for the rich, 4) Sarbanes-Oxley Act, 5) Encouraging consumer spending, 6) The lack of an energy policy, 7) State of denial, and 8) A muddled first bailout by Treasury Secretary Henry Paulson. [18]

In 2005, Congressman Ron Paul (R-Texas) said section 404 of the Sarbanes-Oxley Act (2002) which requires chief executive officers to certify the accuracy of financial statements caused capital flight away from the U.S. stock market. [19] Later in 2008, Paul said that the government bailouts of badly run corporations was rewarding bad behavior and punishing good behavior, and that it prevented resources from being allocated away from inefficient uses to more productive uses, and that this lowered the overall amount of wealth across the entire economy. [20]

In March 2009 White House budget director Peter Orszag said, "Job losses began in January 2008. The stock market started declining October 2007.... This has been, you know, eight years in the making, and again, it's going to take some time to work our way out of it." [21]

Blaming the Barack Obama administration

A September 13, 2008, Wall Street Journal editorial prior to the election written by Phil Gramm, former Republican Senator and [22] campaign economic adviser to John McCain, and Mike Solon, former Policy Director under the George W. Bush Administration, suggested that looking at the Senators' respective states proved traditional Republican strategies, enacted by McCain, would be better for the economy than traditional Democratic strategies, enacted by Obama, arguing "Mr. Obama would stimulate the economy by increasing federal spending. Mr. McCain would stimulate the economy by cutting the corporate tax rate." [23] Gramm had introduced the Gramm-Leach-Bliley Act [24] which editors of the same paper, The Wall Street Journal, pointed out in a March 10, 2009, article had been blamed for deregulating major corporations and "allowed for the creation of giant financial supermarkets that could own investment banks, commercial banks and insurance firms, something banned since the Great Depression. Its passage, critics say, cleared the way for companies that were too big and intertwined to fail." [25] That month, September 2008, would see record drops in the Dow, including a 778-point drop to 10,365.45 that was the worst since Black Monday of the 1987 stock market crash [26] and was followed by a loss of thousands of points over the next two months, standing at 8,046 on November 17 and including a 9% plunge in the S&P on December 1, 2008.

As of early March 2009, the Dow Jones Industrial Average had fallen 20% since the inauguration of President Barack Obama (less than two months earlier), the fastest drop under a newly elected president in at least 90 years. [27] Editorials in the Wall Street Journal by the editorial staff and Michael Boskin, one of George H.W. Bush's Council of Economic Advisors, blamed this on Obama's economic policies. [28] [29] [30]

Finding a bottom

President Obama on March 3, 2009 said "What you're now seeing is profit-and-earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it," probably meaning price-earnings ratio. [31] Many stocks were trading at low P/E levels despite first quarter strong earnings. On the same day, David Serchuk of Forbes magazine says he feels that the market will turn around when housing prices stabilize and oil prices rise again. [32]

The DJIA hit a low on March 6, 2009 of 6,469.95. On that same day, a regulatory report indicated that the 5 biggest banks still had large risk exposure due to derivatives that could fail. [33]

Building a technical bull

On Tuesday, March 10, Vikram Pandit the CEO of Citibank, said that his bank has been profitable the first two months of 2009 and was currently enjoying its best quarterly performance since 2007. On March 12, Ken Lewis, CEO of Bank of America, declared that bank had also been profitable in January and February, that he didn't foresee the bank needing further government funds, and that he expected to "see $50 billion in 2009 pre-tax revenue". The announcements caused multi-day rallies with double-digit percentage gains for a number of stocks both in and outside of the banking industry. [34] [35]

After only a month and a half in office, in a media blitz including press conferences, interviews and public appearances, President Obama, Federal Reserve chair Ben Bernanke, [36] [37] Federal Deposit Insurance Corporation chair Sheila Bair [38] [39] and Treasury Secretary Tim Geithner [40] rolled out the details of numerous plans to tackle various elements of the economy, and began putting those plans into action. Mortgage rates for homeowners dropped, limits on executive compensation were enacted, regulatory changes were proposed, and the Treasury announced its intention to purchase $1 trillion of troubled bank assets, such as the aforementioned derivatives, and enticing private investors to join them in making similar investments. [41]

Already rising for two weeks, following the Geithner announcement the DJIA had its fifth-biggest one-day point gain in history. [41] "Tim Geithner went from zero to hero in a matter of just a few days" and reported that Bank of America stock led banking stocks with 38% one-day gains. [42] On March 26, 2009, after just short of three weeks of gains which frequently defied the day's bad economic news, the DJIA rebounded to 7924.56. A rise of 21% from the previous low, this met the technical requirements to be considered a bull market. [43] A Wall Street Journal article declared, "Stocks are on their strongest run since the bear market started a year and a half ago as investors continue to debate whether the economy and the markets have finally stabilized". [44] Bloomberg noted the Obama administration's successes included the sale of $24 billion worth of seven-year Treasury notes and pointed out that March 2009 was the best month for the S&P 500 since 1974. [45]

Bonds

U.S. government bonds did well, especially longer terms. Yields dropped during this time period, part of a long-term bull market. High-grade corporate bonds and muni bonds also performed well. However, high-yield bonds had very bad performance, although they turned up coincident with the bull market in stocks.

Other markets

The Nikkei 225 average went from 18,262 on July 9, 2007 to 7,055 on March 10, 2009. [46] However, the yen also went up 24% compared with the U.S. dollar during this time.

The FTSE 100 went from 6,731 on October 12, 2007 (and 6,698 in July) to 3,512 on March 3, 2009 (about 48%). However, the pound sterling went down about 28% during this time (thus about 62% overall).

See also

Related Research Articles

New York Stock Exchange American stock exchange

The New York Stock Exchange is an American stock exchange located at 11 Wall Street, Lower Manhattan, New York City, New York. It is by far the world's largest stock exchange by market capitalization of its listed companies at US$30.1 trillion as of February 2018. The average daily trading value was approximately US$169 billion in 2013. The NYSE trading floor is located at 11 Wall Street and is composed of 21 rooms used for the facilitation of trading. A fifth trading room, located at 30 Broad Street, was closed in February 2007. The main building and the 11 Wall Street building were designated National Historic Landmarks in 1978.

Dow Jones Industrial Average Stock market index

The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow, is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States. Although it is one of the most commonly followed equity indices, many consider the Dow to be an inadequate representation of the overall U.S. stock market compared to broader market indices such as the S&P 500 Index or Russell 3000 because it only includes 30 large cap companies, is not weighted by market capitalization, and does not use a weighted arithmetic mean..

Stock market crash Sudden dramatic decline of stock prices across a significant cross-section of a stock market

A stock market crash is a sudden dramatic decline of stock prices across a major cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic selling as much as by underlying economic factors. They often follow speculation and economic bubbles.

A market trend is a perceived tendency of financial markets to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames. Traders attempt to identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time.

Wall Street Crash of 1929 Major stock market crash in 1929

The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the fall of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange collapsed.

S&P 500 Index Stock market index

The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices, and many consider it to be one of the best representations of the U.S. stock market. The average annual total return of the index, including dividends, since inception in 1926 has been 9.8%; however, there were several years where the index declined over 30%. The index has posted annual increases 70% of the time.

Black Monday (1987) stock market crash of Monday, October 19, 1987

Black Monday on October 19, 1987 is the name commonly attached to a sudden, severe, and largely unexpected stock market crash that struck the global financial market system. In the United States, the Dow Jones Industrial Average (DJIA) fell 508 points (22.6%), accompanied by crashes in the futures and options markets. This was one of the largest one-day percentage drops in the history of the Dow Jones index. Significant selling created steep price declines throughout the day, particularly during the last hour and a half of trading. The S&P 500 and Wilshire 5000 indices each declined more than 18 percent, and the S&P 500 futures contract declined 29 percent. Total trading volume was so large that the computer and communications systems in place at the time were overwhelmed, leaving orders unfilled for an hour or more. Large funds transfers were delayed for hours and the Fedwire and NYSE DOT systems shut down for extended periods of time, further compounding traders' confusion.

Jim Cramer American stockbroker, television personality, author

James J. Cramer is an American television personality, and host of Mad Money on CNBC. He is a former hedge fund manager as well as a best-selling author and a co-founder of TheStreet.com.

This article is a summary of the closing milestones of the Dow Jones Industrial Average, a United States stock market index. Since first closing at 62.76 on February 16, 1885, the Dow Jones Industrial Average has increased, despite several periods of decline.

The Dogs of the Dow is an investment strategy popularized by Michael B. O'Higgins in 1991 and the official Dogs of the Dow website, which proposes that an investor annually select for investment the ten Dow Jones Industrial Average (DJIA) stocks whose dividend is the highest fraction of their price. Under other analysis these stocks would be considered "dogs", or undesirable, but the Dogs of the Dow strategy proposes these same stocks have the potential for substantial increases in stock price plus relatively high dividend payouts.

The Kennedy Slide of 1962, also known as the Flash Crash of 1962, is the term given to the stock market decline from December 1961 to June 1962 during the Presidential term of John F. Kennedy. After the market experienced decades of growth since the Wall Street Crash of 1929, the stock market peaked during the end of 1961 and plummeted during the first half of 1962. During this period, the S&P 500 declined 22.5%, and the stock market did not experience a stable recovery until after the end of the Cuban Missile Crisis. The Dow Jones Industrial Average fell 5.7%, down 34.95, the second-largest point decline then on record.

Regulatory responses to the subprime crisis addresses various actions taken by governments around the world to address the effects of the subprime mortgage crisis.

Timothy Geithner American central banker and politician

Timothy Franz Geithner is a former American central banker who served as the 75th United States Secretary of the Treasury under President Barack Obama, from 2009 to 2013. He was the President of the Federal Reserve Bank of New York from 2003 to 2009, following service in the Clinton administration. Since March 2014, he has served as president and managing director of Warburg Pincus, a private equity firm headquartered in New York City.

The Great Recession in the United States was a severe financial crisis combined with a deep recession. While the recession officially lasted from December 2007 to June 2009, it took many years for the economy to recover to pre-crisis levels of employment and output. This slow recovery was due in part to households and financial institutions paying off debts accumulated in the years preceding the crisis along with restrained government spending following initial stimulus efforts. It followed the bursting of the housing bubble, the housing market correction and subprime mortgage crisis.

Financial crisis of 2007–08 Global financial crisis

The financial crisis of 2007–08, also known as the global financial crisis (GFC), was a severe worldwide economic crisis. It is considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s. It sparked a global recession and at the time was considered the reason behind the single worst global recession of the 21st century, though it was ultimately overshadowed by the Great Lockdown of 2020.

The Chinese stock market turbulence began with the popping of the stock market bubble on 12 June 2015 and ended in early February 2016. A third of the value of A-shares on the Shanghai Stock Exchange was lost within one month of the event. Major aftershocks occurred around 27 July and 24 August's "Black Monday". By 8–9 July 2015, the Shanghai stock market had fallen 30 percent over three weeks as 1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent further losses. Values of Chinese stock markets continued to drop despite efforts by the government to reduce the fall. After three stable weeks the Shanghai index fell again on 24 August by 8.48 percent, marking the largest fall since 2007.

The 2015–16 stock market selloff was the period of decline in the value of stock prices globally that occurred between June 2015 to June 2016. It included the 2015–16 Chinese stock market turbulence, in which the SSE Composite Index fell 43% in just over 2 months between June 2015 and August 2015, which culminated in the devaluation of the yuan. Investors sold shares globally as a result of slowing growth in the GDP of China, a fall in petroleum prices, the Greek debt default in June 2015, the effects of the end of quantitative easing in the United States in October 2014, a sharp rise in bond yields in early 2016, and finally, in June 2016, the 2016 United Kingdom European Union membership referendum, in which Brexit was voted upon.

2020 stock market crash Ongoing stock market crash in 2020

The 2020 stock market crash was a global stock market crash that began on 20 February 2020. On 12 February, the Dow Jones Industrial Average, the NASDAQ Composite, and S&P 500 Index all finished at record highs. From 24 to 28 February, stock markets worldwide reported their largest one-week declines since the 2008 financial crisis, thus entering a correction. Global markets into early March became extremely volatile, with large swings occurring in global markets. On 9 March, most global markets reported severe contractions, mainly in response to the COVID-19 pandemic and an oil price war between Russia and the OPEC countries led by Saudi Arabia. This became colloquially known as Black Monday. At the time, it was the worst drop since the Great Recession in 2008.

References

  1. Dow Hits Bear-Market Territory, Signaling Woe for Economy Wall Street Journal, June 28, 2008
  2. Michael M. Grynbaum Gloom Descends Over Wall Street Again The New York Times, June 27, 2008
  3. Elizabeth Stanton Dow Average's Drop Into Bear Market May Signal Losses July 3, 2008. Archived July 10, 2008, at the Wayback Machine
  4. Alexandra Twin Bear scare on Wall Street CNNMoney, June 27, 2008
  5. Instant View: Dow industrials enter bear market territory Reuters, Jun 27, 2008
  6. https://money.cnn.com/2009/03/06/markets/markets_newyork/index.htm
  7. 1 2 ^DJI: Historical Prices for Dow Jones Industrial Average
  8. E.S. Browning (2007-03-27). "Bears Are Wary as Bull Returns". The Wall Street Journal . Retrieved 2009-04-03.
  9. ^IXIC: Historical prices for NASDAQ Composite
  10. ^GSPC: Historical prices for S&P 500
  11. Laurie Kellman: Whose economy is it anyway? mlive.com/Associated Press, March 05, 2009
  12. US Recession in 2007 - Third Leg of the Bear Market Likely, by Paul Lamont, The Market Oracle, February 5, 2007
  13. Oil Prices Drive Stocks to Bear Market The Washington Post July 6, 2008
  14. Tom Petruno Obama bad for stocks? It's not that simple Los Angeles Times, March 7, 2009
  15. Dick Meyer Wall Street Blame Game: Tag, You're It, NPR, March 5, 2009
  16. Michael J. Panzner:Up Next: The Obama Bounce? Huffington Post, March 7, 2009
  17. Robert Reich:Is Obama responsible for Wall Street's meltdown?, Salon, March 5, 2009
  18. Justin Fox:A Look Back at Bush's Economic Missteps Time (magazine), March 08, 2009
  19. Ron Paul:Repeal Sarbanes-Oxley!, Ron Paul speech to U.S. House of Representatives, April 14, 2005 Archived July 30, 2007, at the Wayback Machine
  20. Ron Paul:The Bailout Surge, Ron Paul, November 24, 2008 Archived February 28, 2009, at the Wayback Machine
  21. Stocks turn in worst performance for new president, Associated Press, March 10, 2009
  22. "Archived copy". Archived from the original on October 12, 2008. Retrieved March 27, 2009.CS1 maint: archived copy as title (link)
  23. Phil Gramm and Mike Solon: If You Like Michigan's Economy, You'll Love Obama's, Wall St. Journal, September 13, 2008
  24. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=106_cong_public_laws&docid=f:publ102.106
  25. Paletta, Damian; Scannell, Kara (March 10, 2009). "Ten Questions for Those Fixing the Financial Mess". The Wall Street Journal.
  26. Bajaj, Vikas; Grynbaum, Michael M. (September 30, 2008). "For Stocks, Worst Single-Day Drop in Two Decades". The New York Times. Retrieved May 26, 2010.
  27. Study: Dow's Decline Is Fastest for a New President in Nearly a Century, Fox News, March 6, 2009 Archived March 7, 2009, at the Wayback Machine
  28. The Obama Economy, Wall St. Journal, March 3, 2009
  29. The Obama Economy, Cont., Wall St. Journal, March 6, 2009
  30. Michael Boskin:Obama's Radicalism Is Killing the Dow, Wall St. Journal, March 6, 2009
  31. Michael Mcauliff: Obama Says Buy Stocks Now: Good Deals There for Long-Term Investors US News and World Report March 4, 2009
  32. David Serchuk: When Will The Bear Market End? Forbes March 6, 2009
  33. Greg Gordon and Kevin G. Hall: Regulatory reports show 5 biggest banks face huge loss risk McClatchy, March 9, 2009 Archived March 17, 2009, at the Wayback Machine
  34. Citigroup Remarks Boost Stocks Nasdaq, March 11, 2009 Archived June 11, 2011, at the Wayback Machine
  35. "SmarTrend(R) News Watch: Ken Lewis Says BofA Profitable in Beginning of 2009".
  36. "Ben Bernanke's Greatest Challenge".
  37. "Federal Reserve Board - Financial Reform to Address Systemic Risk".
  38. http://marketplace.publicradio.org/display/web/2009/03/11/pm_fdic_q/%5B%5D
  39. "Responsible Homeownership". National Cable Satellite Corporation. December 17, 2008.
  40. Geithner, Timothy (March 23, 2009). "My Plan for Bad Bank Assets". The Wall Street Journal.
  41. 1 2 Stark, Betsy (2009-03-23). "Dow Soars as Investors Back Bad Asset Plan". ABC News.
  42. La Monica, Paul (2009-03-23). "Geithner enchants the markets". Money.CNN.com.
  43. "Archived copy". Archived from the original on March 30, 2009. Retrieved March 27, 2009.CS1 maint: archived copy as title (link)
  44. Mckay, Peter A.; Rogow, Geoffrey; Curran, Rob (March 26, 2009). "Stocks' Momentum Keeps Building". The Wall Street Journal.
  45. "U.S. Markets Wrap: S&P 500 Advances in Best Month Since 1974". Bloomberg. March 26, 2009. Archived from the original on January 23, 2009.
  46. Dunn, James (2011-04-18). Share Investing For Dummies - James Dunn - Google Books. ISBN   9781742468914.

Further reading

  1. Bartram, Söhnke M.; Bodnar, Gordon M. (December 2009). "No Place to Hide: The Global Crisis in Equity Markets in 2008/09". Journal of International Money and Finance. 28 (8): 1246–1292. doi:10.1016/j.jimonfin.2009.08.005. SSRN   1413914 .