The descent into bear territory is a significant moment for markets, which often operate as something of an experiment in mass psychology. Although investors are unlikely to immediately change their buying and selling strategies after Wednesday, the 20 percent marker — arbitrary, but widely agreed upon — carries symbolic value. Bear markets can also herald economic recessions — including the 1929 stock market crash that preceded the Great Depression, or the last bear market that began in 2007 as the United States economy plunged into a financial crisis.
A bull market is one of the best indicators of investors’ confidence in the underlying strength of the economy, and their belief that corporate profits and consumer spending are robust and will continue to grow. For many, it also signals America’s continued pre-eminence in the global economy, and when a bull market veers off course, investors tend to panic about the future.
The latest bull market grew out of the ashes of the 2008 financial crisis, with the S&P 500 beginning its run in March 2009, and rising over 300 percent during this period. It lasted about twice as long as the average bull run. (The gains were 400 percent, if you included dividend payments.) Since the bull market for the Dow began, it is up more than 250 percent.
The performance of the S&P and the Dow together provides a capsule history of the American economy since it emerged from the recession that set in after a foreclosure crisis, a panic on Wall Street and a rash of bank failures beginning in 2007.
In the past decade or so, the United States experienced an economic expansion with few parallels in history, as the unemployment rate fell and low interest rates fueled consumer spending, including for major purchases like houses and cars. Consumer spending has long been the engine of the American economy, a driving force that has helped lift markets through rough patches, geopolitical crises and a trade war with China.
Still, the bull run happened even as income inequality in America has grown, and the market’s riches have not been distributed evenly. Charles Geisst, a retired Manhattan College professor, and historian of Wall Street, described the 11-year run as the “most distrusted bull market” of recent memory. “It think it was reflective of everything that we’ve seen socially and politically in the last 12 years,” Mr. Geisst said. “The average guy did not believe it, didn’t believe in the prosperity.”
And despite the gains, the long climb for the stock market was a steady simmer that never quite reached a boil. The 13 percent annual pace of gains was far less than during similar periods of the 1980s and 1990s that generated mass enthusiasm for ownership of stocks.
In the end, the bull market was felled by a virus. That’s because an outbreak of disease such as the coronavirus presents a more complicated problem that cannot easily be fixed by monetary or fiscal policy, such as interest-rate and tax cuts. The outbreak’s twin disruptions — snapping global supply chains and suppressing consumer demand — are leading to enormous challenges for governments scrambling to contain a disease while also steadying the economy.