- The Great Depression bear market was the worst in U.S. history. The Dow fell 90% in less than four years, peaking at 381.17 on Sept. 3, 1929, and falling to 41.22 by July 8, 1932. The major event was the 1929 stock market crash, which followed an asset bubble caused by a financial invention called buying “on margin.” This allowed people to borrow money from their broker and only put down 10% to 20% of the stock value. When a scandal rocked the British stock market, investors lost confidence in the U.S. market, triggering the crash.
- The second-worst, by percentage, was the 2008 bear market. It began on Oct. 9, 2007, when the Dow closed at 14,164.43. It fell 53.4% to close at 6,544.44 on March 6, 2009. It was caused by the 2008 stock market crash, the failure of Lehman Brothers, and the reluctance of Congress to restore confidence by passing a bailout. It didn’t end until the government launched the economic stimulus plan of 2009. The Dow didn’t regain its 2007 high until March 5, 2013, when it closed at 14,253.77.
- The third-worst, percentage-wise, was the 1973 bear market. On Jan. 11, 1973, the Dow closed at 1,051.70. It had fallen 45% by Dec. 4, 1974. President Richard Nixon helped create this recession by ending the gold standard. That caused inflation as the dollar rose.
- The 2000 bear market ended the greatest bull market in U.S. history. It began on January 14, 2000, when the Dow closed at 11,722.98. The benchmark fell 37.8% until it hit its bottom of 7,286.87 on Oct. 9, 2002. This bear market triggered the 2001 recession, and was compounded by the 9/11 terrorist attacks, which shut down stock exchanges and shocked the world.
- The 1970 bear market began on Dec. 31, 1968, when the Dow closed at 908.92. It had dropped 30% before bottoming out at 631.60 on May 26, 1970.
If the rally continues (BIG IF), the next leg is going to be characterized by mind-blowing moves higher from some of the ugliest stocks on earth.
You have to look at a bear market rally like you look at a drug addict.The first phase is just intoxication, like the feeling one gets after a few beers down at the Regal Beagle Bar & Grill. The market equivalent of this is a move higher in the blue chips and mega-cap stocks.
Next, the rally extends to the rest of the large caps, some mid-caps and the growth indexes in general get their upswing. This is like the addict switching from beers to tequila and then smoking a little weed out behind the bar with his cousin and the busboy.
Once the large and mid-cap stocks have had their moves, the junkie looks to the smaller cap names and even some of the more distressed S&P stocks that sat out the beginning of the rally. The euphoria kicks in here, as this would be right around the time he ducks into the men’s room to crush up a few pain pills and snort them off the sink.
Now, the addict is flying high, and the search begins for lower quality, damaged stocks and tertiary names in a given sector, as he thinks these could play catch up to their better-managed and bigger brethren companies. At this point, he is sitting in his car outside his ex-girlfriend’s house doing lines of cocaine off of CD cases.
The final stage of this junkie odyssey is when you start to see the bankruptcy candidates putting on 40 and 50% moves, you are looking at the equivalent of a drug addict sucking the nitrous gas out of a whipped cream canister, so desperate for that final high that he’ll pretty much try anything at the end of the night.
Why use a bear to describe an investment trend?
In the late 1500s, people enjoyed bull and bear-baiting. They gambled on which dogs could kill a bear chained to a post. Surprisingly, bear-baiting still occurs in South Carolina, although it’s illegal in the other 49 states.
That’s how bears and bulls first became linked in people’s minds. In the 17th century, hunters would sell a bearskin before catching a bear. In the stock market, short sellers did the same thing. They sold shares of stock before they owned them. They bought the shares the day they were to deliver them. If share prices dropped, they would make a profit. They only made money in a bear market.The phrases were first published in the 18th-century book, “Every Man His Own Broker,” by Thomas Mortimer. Two 19th century artists made the terms even more popular. Thomas Nast published cartoons about the slaughter of the bulls on Wall Street in Harper’s Bazaar. In 1873, William Holbrook Beard painted the stock market crash using bulls and bears.