January 9, 2019
A History of Bear Markets Since 1929
By Vance Albitz, CFP®
The U.S. stock market (measured by the S&P 500*) recently entered into bear market territory for the first time since the 2008-2009 global financial crisis. A bear market is classified as a 20% drop from its peak. The S&P 500 saw this peak on September 21, 2018 as it skyrocketed to an intraday high of $2,940.91. On December 26, 2018, it hit $2,346.58, a drop of 20.20%, before closing the year at $2,506.85. We don’t know what the future holds, but we can look back at the past. Let’s take a look at nine notable bear markets since the Great Depression.
The Stock Market Crash of 1929
Period: September 1929 – June 1932
Length: 34 months
S&P 500 loss: 86.1%
The stock market crash on October 29, 1929 (known as Black Tuesday) started the Great Depression, the worst economic crisis of modern times. This to date is America’s most famous bear market and lasted nearly three years. The crash followed the Roaring Twenties, a time marked by a golden age of technological advances. Innovations such as the radio, automobile, aviation, telephone, and the power grid were adopted and companies that created these pieces saw their stocks soar in the twenties. Investors were infatuated with the returns available in the stock market, especially by the use of borrowing money on margin.
The Post WWII Crash of 1946
Period: May 1946 – June 1949
Length: 37 months
S&P 500 loss: 29.6%
Less than a year after World War II ended, stock prices hit a high and then slowly began a long slide down. As the postwar surge in demand weakened, many Americans poured money into savings, driving stocks into a bear market.
The Kennedy Slide of 1962
Period: December 1961 – June 1962
Length: 6 months
S&P 500 loss: 28%
This was a brief bear market caused by an economy that had overheated. The decline was triggered by a failed Bay of Pigs military invasion and the Cuban Missile Crisis, which escalated Cold War fears and carried over into the stock market.
Nixon’s Civil Unrest of 1969
Period: November 1968 – May 1970
Length: 18 months
S&P 500 loss: 36.1%
Shortly after Richard Nixon was elected president, a bad year of civil unrest and high inflation led to a bear market. Riots, assassinations, and tensions in Vietnam only extended the decline in the stock market.
Stagflation, Dismissal of the Gold Standard, and the Oil Crisis of 1973
Period: January 1973 – October 1974
Length: 21 months
S&P 500 loss: 48%
This bear market started with the end of the Bretton Woods monetary system and was later elevated by the 1973 oil crisis. To add to these events, there was the unfavorable combination of high inflation and high unemployment (an economic situation known as stagflation).
Volcker Bear Market of 1982
Period: November 1980 – August 1982
Length: 20 months
S&P 500 loss: 27%
The Volcker Bear Market is named after the then Federal Reserve Chairman Paul Volcker, who aggressively raised interest rates to slow down the overheated economy. This made it difficult to borrow money and contributed to an unemployment rate of over 10 percent.
Black Monday and the Crash of 1987
Period: August 1987 – December 1987
Length: 3 months
S&P 500 loss: 34%
Black Monday occurred on October 19, 1987, after the introduction of computerized trading. This was the first trigger of the market crash and short lived bear market. The second trigger was the devaluation of the U.S. dollar amid debates over currency valuations between the United States and Germany.
The Dot-com Bubble of 2000
Period: March 2000 – October 2002
Length: 31 months
S&P 500 loss: 49%
The dot-com bubble was a historic economic bubble and period of excessive speculation. It occurred due to the extreme growth in the usage and adaptation of the Internet. As a result of the success of the internet, many investors were eager to invest, at any valuation, in any dot-com company, especially if it had one of the Internet-related prefixes or a “.com” suffix in its name. During the crash, several online shopping companies, as well as communication companies, failed and shut down. The failure of these companies and the fear that resulted nearly cut the S&P500 in half.
The Housing Bubble and Global Financial Crisis of 2008
Period: October 2007 – March 2009
Length: 17 months
S&P 500 loss: 57%
The collapse in the U.S. housing market triggered a financial collapse felt around the world and led to the Great Recession. The years leading up to the crisis were characterized by an excessive rise in asset prices and associated boom in economic demand. U.S. mortgage-backed securities, which had risks that were hard to assess, were marketed around the world, as they offered higher yields than U.S. government bonds. Many of these securities were backed by subprime mortgages, which collapsed in value when the U.S. housing bubble burst during 2006 and homeowners began to default on their mortgage payments in large numbers starting in 2007. This led to a financial crisis that cut the S&P 500 by 57% and resulted in massive public financial assistance, known as government bailouts.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
*The S&P 500 Index is a capitalization-weighted index made up of 500 widely held large-cap U.S. stocks in the Industrials, Transportation, Utilities and Financials sectors.