Stock Market History

The stock market, as measured by the Dow Jones Industrial Average, has historically performed similarly to the economy. Usually a bear market occurs during a recession, and a bull market during an expansion. The history of the stock market since the Great Depression shows these are a natural, though painful, part of the business cycle. However, the Dow closing history in this recession is worse than any other. So far, the Dow has fallen over 50%, the worse decline since the 80% drop during the Great Depression.

2008-2009 Recession

On October 9, 2007, the Dow closed at 14,164.43, an all-time high. However, fourth quarter GDP growth was -1%, announcing the start of the recession. The Dow started declining gradually. After the failure of Bear Stearns in April 2008, and a negative GDP report in Q2 2008, the Dow dropped to 11,000. Many analysts felt that this 20% decline was the market bottom.

However, on Monday, September 15, 2008, Lehman Brothers declared bankruptcy. On Wednesday, panicky bankers withdrew $144 billion from money market funds, nearly causing a collapse. In response, the Dow plummeted 13% in October. By November 20, 2008, it fell to 7,552.29, a new low. This was not yet the true market bottom. The Dow climbed to 9,034.69 on January 2, 2009 before screeching down to 6,594.44 on March 5, 2009. Between its peak and its bottom, the Dow dropped over 50% in just 17 months.

On July 24, 2009, the Dow beat its January high, rising to 9,093.24 by close of day.

2001 Recession

The 2001 recession lasted eight months, between March and November 2001. It was caused by the Y2K scare, which created a boom and subsequent bust in Internet businesses. The Dow peaked on January 14, 2000, closing at 11,722.98. Its first bottom was on September 21, 2001, dropping to 8,235.82 after the 9/11 attacks. Threats of war drove the Dow down until October 9, 2002, when it closed at 7,286.27, a 37.8% decline. No one knew for sure if the bull market had begun until the Dow hit a higher low on March 11, 2003, closing at 7,524.06.

1998 Currency Crisis

In 1997, Thailand cut its peg to the dollar, leading to a devaluation in currency throughout Southeast Asia. A year later, Russia devalued the ruble and defaulted on its bonds. The stock market dropped 20%. The Long-Term Capital Management hedge fund nearly collapsed, threatening to push its banking investors into bankruptcy. Then-Federal Reserve Chairman Alan Greenspan convinced them to support the hedge fund, averting further disaster.

1990-1991 Recession

This recession lasted 8 months, from July 1990 to March 1991. Kuwait invaded Iraq in July 1990. This caused the Dow to drop 18% in three months, from 2,911.63 on July 3 to 2,381.99 on October 16,1990.

1987 Stock Market Crash

On October 19, 1987 the Dow fell 22.6%, from 2,246.73 to 1,738.74. The stock market crash may have been caused by computer trading that forced sell orders when the market turned down. The Dow didn't regain its August 25, 1987 peak of 2,722.42 for two years. The loss of liquidity from this crash led to the Savings and Loan Crisis in 1989.

1980-1982 Recession

This was technically two recessions: the first six months of 1980 and 16 months from July 1981 - November 1982. It was partially caused by the 1979 Iran-Iraq war, which reduced supply of oil to the U.S., creating inflation. The Dow dropped 16%, from a high of 903.84 on February 13, 1980 to a low of 759.13 on April 21, 1980. The Federal Reserve, under Paul Volcker, lowered the Fed Funds rate to 8.5% in response. The Dow rose to 1,004.32 on April 28, 1981. However,the Fed then raised rates to combat inflation, which reduced business spending. By August 12, 1982 the Dow had dropped 22.6%, to 776.92.

1973-1975 Recession

This recession was long, lasting sixteen months (November 1973 - March 1975). OPEC is generally blamed, as it quadrupled prices for a few months in 1973. However, this wasn't enough to caused such a deep recession. Instead, it was caused by several complicated factors which started with the U.S. going off of the gold standard and printing money. This created inflation, as too many dollars chased too few goods. President Nixon instituted wage-price controls, which kept prices too high, reducing demand. This forced businesses to lay off workers, who were also priced too high. The Dow dropped 45% from its peak of 1,051.7 on January 11, 1973 to its low of 577.60 on December 4, 1974.

1970 Recession

This recession was relatively mild, lasting only 11 months. The Dow dropped 30% between December 31,1968, when it hit its high of 908.92, and May 26, 1970, when it reached its bottom of 631.6.

1962 Cuban Missile Crisis

The U.S. launched an embargo against Cuba in February 1962. The Dow dropped 26.5% from its post-election height of 728.8 on December 1, 1961 to its June 26, 1962 low of 535.76. Tensions were heightened in October 1962, and the Dow dropped 2% the day after President Kennedy's speech.

1960 Recession

Starting in April 1960, the recession lasted 10 months. The Dow dropped 13.9% from its December 31, 1959 height of 679.36 to its November 1, 1960 low of 585.24.

Recession of 1957

Only eight months long, it lasted between August 1957 to April 1958. It was caused by a contractionary monetary policy. The Dow dropped 14.1%, from its height of 506.21 on August 1, 1957 to its low of 434.71 on November 1, 1957.

Recession of 1953

Beginning July 1953, this recession lasted 10 months, and was a result of the end of the Korean War. The Dow dropped less in this recession than it has done in a recent week - only 7.5% between January 1 and September 1, 1953.

1949 Recession

This 11 month recession began in November 1948 and lasted until October 1949. This was another natural down cycle, caused by the economy adjusting to peace-time production. The Dow dropped 19.3% between June 1948 and June 1949.

1945 Recession

This recession lasted only eight months, between February and October 1945. However, it was nasty, with GDP plummeting 11% in 1946. This was a natural result of the demobilization from WWII, as the huge demand for military weapons were no longer needed. The Dow fell 19.3% between June and October 1946. (Source: NBER, Business Cycle Expansions and Contractions)