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Monday, November 1, 2010

Best and Worst Years for the Stock Market

A historical perspective

As the current recession began, the stock market tumbled. Now, as the economy struggles to recover, the market has regained much of what it lost. How does this compare to 1929? What about 1987? How long will it take to bounce back? To get a historical perspective, here is a look at the five worst and five best years on the stock market measured by percentage change in the Dow Jones Industrial Average.

 1931 (-52.3%)

Although three days in the fall of 1929, including the first Black Monday, rank among the biggest daily losses, overall 1929 wasn’t that bad. The top honour for the biggest drop goes to 1931 when the stock market reversed a short recovery in early 1930. The slide started in April 1931, and ended July 8, 1932, concluding 89% decline from the 1929 peak.

2008 (-33.8%)

The Great Recession, as it has been dubbed, officially started Dec. 2007 and ended June 2009, although the effects continue to be felt well into 2010. Triggered by a combination of global purchasing of U.S. mortgage-backed securities, a dramatic fall in the housing market and a sharp increase in food and oil prices, the stock market fell from 12,000 plus in early 2008 to below 700 by March 2009. The crash was fuelled by the collapse of the prestigious investment house Lehman Brothers and huge losses by other investment and commercial banks. Governments around the world were forced to bail out banks with public funds.

1930 (-33.8%)

It took about three weeks from Black Monday for the stock market to reach what looked like the bottom on Nov. 13, 1929. Then came a six-month recovery. But by this time the Depression had taken root off Wall Street. The drought in the West began and commodity prices were falling. Automobile sales slipped below 1928 levels. Politicians, desperate to be seen to be helping, enacted protectionist policies, which triggered counter policies, combining to cripple global trade and throw the world economy into decline.

1937 (-32.8%)

If the early 1930s weren’t hard enough, 1937 brought the second worst stock market crash on record: a 49.1% drop through 1937 and 1938. With the Depression dragging on and the fear of war in Europe, Wall Street aided its own decline through a series of scandals. The highest profile case was Richard S. Whitney, former five-time president of stock exchange and outspoken stickler for financial discipline, whose company collapsed when it could not meet its obligations. Whitney was convicted of embezzling from the stock exchange gratuity fund, the New York Yacht Club and his father-in-law’s estate.

1974 (-27.6%)

The social and political upheaval of the Sixties continued into the early 1970s. The global economic system was destabilized following the United States’ decision to withdraw from the Bretton Woods system of fixing its currency to the gold standard. Add to that the crisis caused by Arab oil-producing states’ embargo the following the 1973 Yom Kippur War and stock markets around the world fell. The U.S. economy slowed from 7.2% GDP growth to –2.1% and inflation jumped from 3.4% to 12.3%. The United Kingdom suffered particularly badly, with the FT 30 loosing 73% of its value amid a property market and secondary banking crisis.

1933 (+63.7%)

As dramatic as the stock market drops have been, the Dow has seen large rises in other years. Like many of the good years, 1933 followed a particularly bad year. After bottoming out at 41.22 in July 1932, the Dow surged, hitting 105.04 in July 1933. That gain of 154.82% is the largest non-calendar year gain posted

1954 (+44%)

The massive government spending through the Second World War and the recovery and expansion efforts afterward had the economy humming. The Dow Jones climbed gradually from 1942 to Nov. 23, 1954, when it finally regained the pre-1929 levels.

1935 (+38.5%)

The 1933 rally was over. Business was worried about President Roosevelt’s New Deal, which brought in social security programs aimed at helping the country come out of Depression. They didn’t like the mounting debt. But on Wall Street spirits were buoyed based on the belief that the high unemployment and the Depression were on their way out.

1975 (+38.3)

This rally was a reaction to the bear market in 1973 and 1974. While the recovery for consumers was slow due to high inflation (25% in the U.K.), the stock markets bounced back. In the year starting Oct. 2, 1974, the S&P went up 30.84%.

1958 (+34%)

In 1957, there was a recession caused largely by the end of the postwar expansion. The housing market fell and unemployment rose. The first quarter of 1958 actually saw a decline in the economy of 10.4%. But that recession acted as a correction to the economy, which reversed itself and unemployment dropped from the high of 7.4%, inventories grew and growth resumed.


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