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Brief history of bull markets, from post-war boom to housing bust
THE stock market rally that kicked off more than nine years ago during the financial crisis is now arguably the longest on record in the United States (by one measure).
The Standard & Poor's 500 stock index has marched steadily higher for 3,453 days. Since bottoming out on March 9, 2009, it is up more than 320 per cent.
Investors have enjoyed 11 bull markets - defined as a period without a pullback of 20 per cent or more - since the end of World War II. Usually driven by a strengthening economy that fuels corporate profits, bull markets often end in recession after the Federal Reserve begins to raise rates to slow rising prices and cool the economy.
Here's a look at the five other longest bull markets of the past 70 years.
June 1949 to August 1956
A Peacetime Boom
Gain: 267 per cent
The first bull market after World War II remains one of the most impressive. With Europe a shambles, the American economy took off, producing one of the strongest expansions on record. In September 1954, the stock market finally climbed past the peak it had reached in 1929 before the Great Depression. The S&P 500 kept rising, even through a period that included the Korean War and President Dwight Eisenhower's heart attack in 1955.
In 1956, the Fed, concerned about inflation, raised interest rates. The economy cooled, and the bull market ended. The Suez Crisis and the Hungarian Revolution would help drive stocks into a bear market. But that didn't last long - the bull returned in 1957.
October 1974 to November 1980
Gain: 126 per cent
The bull market of the second half of the 1970s didn't charge so much as limp.
The early '70s saw one of the worst bear markets in history, driven by the collapse of a monetary agreement among Western nations, an oil price shock, runaway inflation and slowing economic growth. Stocks had fallen nearly 50 per cent from their 1973 high. But investors became more optimistic as the Vietnam War came to a close, the social unrest of the 1960s began to simmer down and corporate profits rose.
But inflation remained high, robbing investors of much of their returns. In 1979, a tough new Fed chairman, Paul Volcker, finally moved to tame inflation. He raised interest rates to historically high levels, ending the bull market and helping to cause a brief recession in the early 1980s.
August 1982 to August 1987
Before Black Monday
Gain: 229 per cent
Not every bull market ends in a recession. Falling interest rates, a strong economy and a flurry of corporate mergers and public offerings fueled a bull market and the excesses of 1980s Wall Street. Even so, there were mounting concerns heading into autumn 1987: The rally had pushed valuations to high levels and the Fed, again worried about inflation, had begun to raise interest rates. Geopolitical events centered on the Persian Gulf and concerns about the trade deficit only added to investors' jitters.
Then, on Oct 19, 1987, a day that became known as Black Monday, stocks tumbled more than 20 per cent. When the selling began, it was exacerbated by computerised trading, then still in its infancy, without the so-called circuit breakers that would now halt trading during such a plunge. It remains the worst one-day crash in history by percentage.
As dark a moment as it was, the US economy continued to grow for nearly three more years.
October 1990 to March 2000
The Dot-Com Boom
Gain: 417 per cent
Few thought in 1990 that stocks were about to embark on one of the most remarkable rallies ever.
The economy was sluggish, banks were saddled with bad loans and Iraq had recently invaded Kuwait, prompting the US and its allies to send forces to the Middle East. On the day the stock market began its recovery, The New York Times quoted an analyst saying that the bear market had not run its course and that any recovery in the next couple of months would be "a temporary respite in a major downtrend".
Within months, though, Iraq had been expelled from Kuwait, and the economy had entered a period of strong and stable growth. Corporate profits ballooned and retail investors rushed into the market.
Finally, towards the end of the decade, investors' optimism morphed into the sort of "irrational exuberance" that Alan Greenspan, the Fed chairman at the time, had described a few years earlier. The Fed, hoping to slow inflation, and perhaps to cool the stock market, began raising interest rates. But a series of increases were slow to quell investor enthusiasm, and the tech bubble continued to inflate - until, eventually, it burst.
October 2002 to October 2007
The Housing Bubble
Gain: 102 per cent
After the dot-com crash in 2000, the Fed slashed interest rates and borrowing took off - including among homebuyers with subprime credit. Complex financial products - like the collateralised debt obligations into which those mortgages were packaged - soared. The balance sheets, profits and share prices of the banks that created and traded these products swelled. By 2006, the financial sector was the largest in the S&P 500.
But as the economy took off, the Fed began to raise the historically low interest rates. Now the borrowed money was more expensive to pay back, and defaults climbed. By the time stocks peaked in October 2007, the era of easy lending was over and banks were taking huge losses.
By December, the economy had fallen into recession, and the next summer stocks entered a bear market. By October 2008, some of Wall Street's biggest financial institutions had collapsed and the federal government had begun the bailout that helped set off the current bull market. NYTIMES