THE financial system had nearly collapsed. The deepest recession in decades was devouring over 700,000 jobs a month. Roughly US$13 trillion in stock market wealth, slowly rebuilt since the dot-com bust, had again been incinerated.
It was March 2009. And it was one of the best times in a generation to buy stocks.
A decade later, the bull market that began back then ranks among the great rallies in stock-market history. The over 300 per cent surge in the S&P 500 is the index's second-best run ever.
The rise has generated more than US$30 trillion in wealth. Adjusted for inflation, that is the most created during any bull run on record, edging out the US$25 trillion in gains during the epic streak from December 1987 to March 2000, which ended with the bursting of the dot-com bubble, according to Federal Reserve data.
But compared with Americans' attitudes during that earlier climb, reactions to the latest rally are downright subdued. There has been no frenzy for stock trading. Nobody is quitting an accounting, advertising, or waitressing job to concentrate on day trading.
Why so sombre?
Birth of a bull
The psychological and financial damage inflicted by the 2008 financial crisis and the ensuing Great Recession continue to weigh heavily. Fewer people are invested in stocks than before that meltdown, and many of them are wary of taking their gains for granted. That caution could last for decades.
"This was probably the most disliked or most suspected rally that we've ever had in the stock market," said Charles Geisst, a professor at Manhattan College who has studied the history of financial markets.
On March 9, 2009, the day the bull market was born, the stock market, like the economy, was in deep, seemingly existential distress. The S&P 500 was down 57 per cent from its 2007 peak.
Compounding the pain was the nationwide collapse in home prices, which landed a direct hit on most households' greatest source of wealth.
The one-two punch destroyed the finances of millions of families. Between 2007 and 2010, the median wealth of a household in the United States dropped 44 per cent, knocked below 1969 levels.
Every crash has a bottom, though, and in March 2009, the Federal Reserve announced that it would spend US$1 trillion in newly created dollars on government and mortgage bonds to push interest rates lower. It was the dawn of "quantitative easing" - and, it would turn out, a new bull market. The S&P 500 rose 8.5 per cent that month, its best monthly performance in more than six years.
"That should have been the signal to everyone that you can go out there and buy stocks with impunity," said Byron Wien, vice chairman of the private wealth group at Blackstone, the private equity firm.
But to buy stocks, you need money. After watching their fortunes - and retirement funds - shrivel, few Americans were in a position to take a fresh flier on beaten-down stocks.
Those who could were already well-off. In 2007, the wealthiest 10 per cent of American families owned 81 per cent of the nation's household stock market wealth, according Ed Wolff, a professor of economics at New York University who studies the distribution of wealth in the United States. By 2016, they owned 84 per cent, he said.
The recovery in the stock market made those families even richer, increasing their net worth by double-digit percentages. Median American family wealth, meanwhile, dropped 34 per cent.
In the past, such episodes of wealth destruction cast long shadows. For much of the 20th century, the financial habits of the American public were heavily influenced by memories of the Great Depression.
Even in the 1960s, survey data showed that people who were young during the Great Depression were much less likely to invest in stocks, according to research by two economists, Ulrike Malmendier of the University of California, Berkeley, and Stefan Nagel of the University of Chicago.
The 2008 crisis was nowhere near as severe, but a similar dynamic may be affecting people who started their working lives around that time.
Gallup survey data shows that in the last decade, an average of 38 per cent of Americans under 35 have money invested in the stock market. That compares with 52 per cent before the crisis.
Even those who are invested are behaving differently, both in how they invest and what they're doing with the proceeds.
In the decade since the bull market began, the share of Americans investing via index funds, which aim to mimic the performance of bench marks like the S&P 500, has increased significantly.
A mug's game
In 2017, 43 per cent of all the money in US stock market funds was in index funds. Back in 2007, only 19 per cent of stock market assets were in these passive strategies, a style of investing that acknowledges that, for most people, trying to beat the market through savvy trading is a mug's game.
Americans also appear to be less willing than in previous booms to let the rise in stock market wealth on paper lead to a surge in spending. Family savings rates have stayed stubbornly high by historical standards.
"Households continue to kind of treat their capital gains, realised or unrealised, more cautiously than they did in the 1990s or the 2000s," said Michael Feroli, chief US economist at JP Morgan. In part, this is because many stock owners are baby boomers, who might have enjoyed spending their stock market gains 20 years ago but are now more worried about preserving wealth as they retire.
Fred Wallace, a 64-year-old retired HBO executive in Los Angeles, is one of them. When the stock market took a dive in December, he cut his holdings of stock and moved money into cash and bonds.
"That allows you to sleep at night because you know that if stocks tank it doesn't really matter," Mr Wallace said.
But even among Americans who are just starting their careers, this risk-aversion could linger.
Research from Malmendier and Nagel, the economists, suggests that enduring financial traumas at a relatively young age can shape people's behaviour for decades. Younger Americans, Malmendier said, are unlikely to be eager to take big risks in the stock market any time soon.
"We don't see that happening," she said. "People were scarred from that experience." NYTIMES
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