When the Bear Returns
After smooth sailing for more than a decade, U.S. stocks have re-entered choppy waters. Volatility has picked up in the past couple of years after the 2020 bear market put an end to an 11-year bull market. The S&P 500 is down more than 14% year to date, making it near bear market territory, which is generally defined as a sustained decline of 20% or more from recent highs. Many experts say the market entered bear territory in June after falling 21.8% below its January high. While analysts can’t predict when a bear market will end, history can provide some consolation for investors. As hard as this market feels, U.S. investors have experienced worse and lived to tell the tale. Here are seven of the most notorious bear markets to date.
2007 Great Recession
The decade leading up to the 2007 Great Recession saw an extended expansion in the U.S. housing market, with home prices and housing credit swelling. The rise of subprime mortgages enabled borrowers with low credit ratings to buy homes well beyond their means. Mortgage debt rose from 61% of GDP in 1998 to 97% in 2006. When home prices began to decline, these overextended homeowners found themselves unable to pay their mortgages. Investment banks found themselves in danger of insolvency as pressures mounted on the financial markets. The S&P 500 fell 47% between October 2007 and March 2009. As economic activity declined, the U.S. fell into the steepest recession since World War II, which also became the longest lasting at 18 months.
2000 Dot-com Bust
If you were an investor in the late 1990s and you weren’t invested in tech stocks, your friends were probably laughing at you. Until March 2000, that is, when the Nasdaq composite index peaked and the beautiful bubble investors had been living in burst. Many of the companies whose stock prices had been riding high on internet-fueled optimism came crashing down. Some, like Pets.com, even became worthless. In just 1.5 years, the S&P 500 dropped nearly 50% in a decline that lasted almost 930 days.
1987 Black Monday
On Oct. 19, 1987, stocks plunged nearly 25% over the course of a single trading day. The day would become known as Black Monday, when the Dow Jones industrial Average experienced its steepest drop in history, falling 22.61%. The magnitude of the Black Monday drop in the DJIA is nearly double the next-largest single-day drop of 12.93%, which occurred in March 2020 at the start of the COVID-19 pandemic. By the time the market bottomed out in December 1987, the S&P 500 had lost nearly 34% from its peak.
1973 Nixonomics
1972 was a good year for the Dow Jones. It gained 15% over the course of the year. Then inflation began to creep up as the economy slowed, a potent mix that would send the stock market on a slow and painful decline. The bear market would last 630 days, making it the second-longest bear market in history at the time, outdone only by the Great Depression. It would cost the S&P 500 more than 48%.
1961 Kennedy Slide
The bear market during John F. Kennedy’s presidency wasn’t long, but it was grueling. After almost three decades of relatively smooth sailing in the stock market, U.S. investors were jolted back to reality — except for Warren Buffett, perhaps, who said the correction was “not to be unexpected” due to inflated stock prices. The S&P 500 declined 28% in just over six months from December 1961 to late June 1962.
1937 Roosevelt’s Recession
Tighter fiscal and monetary policies were probably not the best strategies for an economy still struggling to recover from the Great Depression, but this was the approach President Franklin D. Roosevelt took. He cut government spending while the Federal Reserve doubled the deposit requirements for banks, taking even more money out of the economy. The U.S. slid into a recession just in time for World War II. Roosevelt’s recession saw the S&P 500 drop nearly 55% between March 1937 and March 1938.
1930 Great Depression
The Great Depression began with the 1929 stock market crash, which would prompt a panic sell-off by skittish investors. People began pulling their money out of banks, causing the institutions to fail at an alarming rate as unemployment soared to nearly 25% by the height of the depression. The S&P 500, which was only 90 stocks at the time and called the “Composite Index,” declined 83% from peak to trough in a 783-day bear market.
7 historic bear markets:
— 2007 Great Recession
— 2000 Dot-com Bust
— 1987 Black Monday
— 1973 Nixonomics
— 1961 Kennedy Slide
— 1937 Roosevelt’s Recession
— 1930 Great Depression
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7 Historic Bear Markets originally appeared on usnews.com
Update 08/02/22: This story was published at an earlier date and has been updated with new information.
