Bull & Bear Market Cycles
Bull and bear market cycles refer to the fluctuations in stock market values, characterized by periods of rising prices (bull markets) and declining prices (bear markets). While the long-term trend of the stock market has historically been upward, short-term volatility is common. Significant events, such as the 1929 crash, have caused dramatic downturns, leading to major economic consequences like the Great Depression. Regulatory reforms, including the establishment of the SEC, aimed to restore investor confidence after such crises. Over the decades, stock market performance has been influenced by various economic factors, including inflation, corporate profits, and global events like the energy crisis of the 1970s and the dot-com bubble burst in 2000. More recently, the COVID-19 pandemic triggered another market downturn in 2020. Despite these challenges, the market has shown resilience, achieving record highs, but ongoing economic issues, such as inflation, continue to affect both the market and everyday people. Understanding bull and bear cycles provides valuable insights into market behavior and economic health.
Bull & Bear Market Cycles
The Stock Market in American History: Bull & Bear Market Cycles
When a stock market is growing in value, or rising, it is called a bull market, and when it is decreasing in value, or falling, it is called a bear market. Although over many decades the trend of the market is inevitably upwards, given the ever-expanding economy and population of the United States, it is subject to dramatic short-term price swings of which the Crash of 1929 is one of the more famous. This crash triggered the Great Depression, a global major economic downturn which lasted throughout much of the 1930s and was later considered the greatest economic disaster of the twentieth century. The Dow Jones Industrial Average lost nearly 90 percent of its value over just three years and reached its all-time low to date of 41.22 in 1932.
The public demanded reform, and Congress passed various laws to curb fraud in the sale of securities and the operation of the stock exchanges. Furthermore, the Securities and Exchange Commission (SEC), the federal regulatory agency, was established. These measures, plus state legislation known as blue sky laws, have also helped to curb excess speculation in the markets.
It took some 20 years for investor confidence to be restored in the stock market, so that by the 1950s the Dow returned to its late 1920s high and began to exceed it. In the late 1960s the market hit 800 and made little progress for the next 15 years. A series of economic problems, such as high inflation, low growth, rising oil prices, and increasing foreign competition, besieged the nation. Particularly devastating was the energy crisis of the mid -1970s when the oil cartel known as the Organization of Petroleum Exporting Countries (OPEC) instituted steep increases in the price of petroleum, thereby hurting corporate profits and stagnating the stock market. It fluctuated from highs of around 1,000 to lows of around 600, and by the early 1980s was at approximately the same 800 level it had reached in the late 1960s.
As the economic problems began to recede, however, the stock market resumed its upward course with confidence. Surging economic growth and corporate profits, plus new investment opportunities such as computer technology and the Internet, helped propel the market to a new high of 10,000 by 1998 and 11,000 by 1999. There were temporary setbacks in 1987 and 1998, but they had no lasting importance other than to generate new restrictions such as limits on stock trading by means of automatic computer programs.
By early 2000, increased scrutiny of dot-com companies revealed that many were little more than a website and an idea that had been built out of start-up cash, with little to no real value. Investors pulled out of the market in droves, causing the dot-com bubble to pop in March 2000. Adding fuel to the fire, the terrorist attacks of 2001 further sank the market. The NASDAQ composite fell from 5,408 in March 2000 to 1,140 by September 2002 in what was later described as the early 2000s recession.
The market recovered from 2002 to 2007, supported by strong growth in the housing market, reaching a high in September of that year. However, this strong growth in the housing market eventually led to a creation of a bubble, which became a leading cause of the subprime mortgage crisis, which became apparent in 2007. When the crisis reached its climax and the housing bubble burst, stock prices tumbled and triggered the worst global economic crisis since the Great Depression. By February 2009, the Dow Industrial Average had lost fifty-four percent of its capitalization, and the US and most other developed countries around the world experienced a recession.
After the economic stabilization bill of 2008 was implemented by the federal government and the recession ended during the early 2010s, the stock market resumed its upward motion, reaching new highs in 2014. This bull cycle largely continued throughout the remainder of the 2010s.
However, this period of favorable returns on investment came to a sudden end during the first quarter of 2020, when the COVID-19 pandemic spread around the world and triggered a global economic crisis. On March 23, 2020, the S&P 500 bottomed out at a value of 2237.40, one of its lowest closing values in years. While the economies of the US and many other countries recovered throughout the early 2020s in terms of stock market growth, inflation became an issue alongside this recovery. Despite ongoing economic strain for many ordinary people, the S&P 500 reached 36,799.65, on Jan. 4, 2022, which marked its all-time high at closing to date; by this point the stock index had experienced its fastest recovery since World War II (1939–45). While inflation, as well as concerns over a looming recession, had somewhat subsided in the US by summer 2023, some experts pointed out that the performance of the stock market during much of the pandemic highlighted how economic problems can persist even when the market is bullish.
Bibliography
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