original article from John Waggoner (InvestmentNews.com)
It's been said that “bull markets don’t die of old age; they die of fright.”
Usually, that fright doesn't come from high prices or panic in the market...it comes from external events: war, oil shortages, unexpected financial collapse, etc.
Here’s a look at the nine bear markets since World War II — and the events that precipitated them.
May 1946 — May 1947
Dow decline: -23.2%
Cause: Sharp Winding Down of the War Effort
Stocks had soared starting in 1942, once victory in World War II seemed more likely. As the troops came home, however, government factory jobs ground to a halt, industrial production plunged and investors feared the return of the Great Depression.
December 1961 — June 1962
Dow decline: -27.1%
Cause: Rising Cold War Fears, Labor Unrest
The failed Bay of Pigs invasion of Cuba in August 1961 stoked Cold War fears. Under pressure from President John F. Kennedy, unions negotiated modest salary increases. The president was furious when the industry promptly hiked prices $6 a ton. "My father always told me that all businessmen were sons of bitches, but I never believed it until now,” he said, sparking fears of an anti-business administration.
February 1966 — October 1966
Dow Decline: -25.2%
Cause: The Costs of War
The “Go-Go” years hit a speed bump. The Federal Reserve warned in March 1965 that the economy was close to overheating. Treasury bill rates and the consumer price index began rising. The U.S. bombing of Hanoi marked a substantial increase in the Vietnam war effort.
December 1968 — May 1970
Dow Decline: -35.9%
Cause: Political Turmoil
Race riots in Detroit in July 1967 were just a taste of what was to come in the next two years as the nation struggled with rioting after the murder of Martin Luther King Jr., the murder of Robert Kennedy and massive anti-war demonstrations. Inflation rose to 6% and Treasury bill yields headed north of 7%.
January 1973 — December 1974
Dow Decline: -45.1%
Cause: Oil Embargo, Watergate
The Arab Oil Embargo started in October 1973, sparking long gas lines, price spikes and an 11.5% prime rate. The Watergate scandal helped push stocks down even more as President Richard Nixon resigned and President Gerald Ford pardoned him.
April 1980 — August 1982
Dow Decline: -24.1%
Cause: Inflation Whipped
Paul Volcker became chairman of the Federal Reserve in July 1979, and set out to crush soaring inflation by raising rates to unprecedented heights. By December 1979, the prime rate hit 21.5%, and by August 1982, unemployment was at 10.5%.
August 1987 — October 1987
Dow Decline: -36.1%
Cause: Rising Interest Rates
One of the greatest bull markets of all time was born in the wake of the 1982 bear market, buoyed by falling interest rates and Reagan-era tax cuts. Inflation jitters sent the bellwether 10-year Treasury note yield to 10.1% in October 1987 from 7% in January, sparking a flight to safety. The Dow plunged 22.6% on Oct. 19, 1987, still the sharpest one-day drop in history. (An equivalent drop today would take the Dow down nearly 5,000 points.)
March 2000 — October 2002
Dow Decline: -38%
Cause: Insane Prices
Here’s a bull market that actually did die of fright. Stock prices gleefully soared to astonishing heights, and some of the highest fliers didn’t actually have earnings. Selling began in March 2000, tearing the technology-laden Nasdaq the hardest.
October 2007 — March 2009
Dow Decline: -53.8%
Cause: Housing Market & Banking Collapse
For a brief time in 2006, all you really needed to buy a $1 million starter castle was a bright smile and a cowboy mortgage broker. Thanks to the miracles of Wall Street engineering, investors found that bundles of bad loans were just as bad as individual bad loans. The mortgage miasma sucked down some of the biggest institutions on Wall Street, from Countrywide bank to Lehman Brothers.