A Decade After A Fearful Market Hit Bottom, Stock Bulls Continue Historic Run | WYPR

A Decade After A Fearful Market Hit Bottom, Stock Bulls Continue Historic Run

Dec 30, 2019
Originally published on December 30, 2019 8:10 am

In March 2009, Wall Street was a fearful and anxious place, where fortunes had been decimated and retirement funds deflated.

What few people could foresee in the depths of the Great Recession was that the stock market was also on the verge of a historic recovery, one that persists today. The decadelong run is also raising caution flags for some analysts who worry that investors are accepting too much risk.

Stocks are finishing 2019 on a remarkable upswing, with all of the major indexes hitting record highs and the S&P 500 up nearly 30% for the year.

"If you look at the world in the last year, worldwide stock markets added $17 trillion — trillion, with a T — in value ... so you've had a remarkable expansion of stock market wealth," says David Kotok, co-founder and chief investment strategist at Cumberland Advisors.

The seeds of that boom were planted a decade ago, when the Federal Reserve and other central banks took bold action to rescue the economy by pumping money into the system and dragging interest rates down to zero, says Quincy Krosby, chief market strategist at Prudential Financial.

"It was a cumulative effort, but certainly the Fed led — and they led in an environment that was dark. They weren't certain what would ignite confidence. But ultimately the global economy started to come off the bottom," she says.

"When things started to get less bad, you could see it, you could feel it. People started going back and buying vehicles. They started buying houses. And people just started having more confidence," Krosby adds.

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By 2013, the Dow Jones Industrial Average was again hitting records, and it has been doing so regularly ever since.

The S&P 500 has increased nearly fivefold since the market bottom, and an investor astute enough to buy, say, a share of Microsoft in March 2009 for about $17 would have seen it rise to nearly $159 today.

The bull market coincided with a lingering anger toward the financial system among many people. Although U.S. taxpayers were forced to bail out big banks during the financial crisis, most Americans haven't shared in Wall Street's riches.

Only about half of all Americans own stock, even through their retirement funds, and 84% of shares are owned by the wealthiest 10%.

Politicians, such as Vermont Sen. Bernie Sanders, have repeatedly noted that the federal government bailed out big banks at taxpayer expense and have proposed taxes on financial transactions.

But the market has often seemed willing to overlook political considerations. When President Trump was elected, some analysts predicted his erratic nature would tank the markets, which tend to like predictability.

Instead, the opposite has happened. Although his anti-trade rhetoric has sometimes sparked periods of volatility, stocks have soared under Trump's watch overall.

"He does deserve some of the credit for it," Krosby says. "He's provided an exceedingly pro-business landscape for the market."

Kotok says the bull market may actually have gone on too long. Many people on Wall Street have never lived through a bear market, and that can lead them to take chances.

"When you have a large mass of people who kind of think everything's going to be good and it's terrific and it'll go on forever, that's a time for caution," Kotok says.

But for now, the euphoria is winning.

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NOEL KING, HOST:

All right as we get very close to the end of the decade, the stock market is finishing this year on a remarkable upswing - the S&P 500 is up almost 30%, stock indices have been hitting records - and that is not what most people were predicting at the start of this decade. NPR's Jim Zarroli has the story.

JIM ZARROLI, BYLINE: Wall Street in 2008 was a fearful and anxious place, strewn with the wreckage of the financial crisis - fortunes had been decimated, retirement accounts deflated. On CNBC, the newscaster spoke about what was happening in ominous terms.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER: It was an historic day, with Wall Street shaken to its very foundation today, and even the health of the most trusted firms are now being called into question.

ZARROLI: Back in those days, it seemed America's financial system was near collapse. Few people would have bet that stocks were about to embark on a record bull market, and yet that's exactly what happened. If you'd put money in stocks in March 2009 at the market bottom, it would be worth many times that today, a decade later. David Kotok is chief investment officer of Cumberland Advisors.

DAVID KOTOK: From the bottom in 2009 to today, the U.S. stock market measured by the broad index, the Standard and Poor's 500 index, has gone up fivefold.

ZARROLI: Tech stocks in particular have soared. Microsoft sold for $17 a share in March 2009; today, it goes for almost $160. What happened to turn things around? Quincy Krosby of Prudential Financial credits the world's central bankers, especially the Federal Reserve. They took bold action to prop up the financial system, even lowering interest rates to zero.

QUINCY KROSBY: It was a cumulative effort, but certainly, the Fed led - and they led in an environment that was dark. They weren't certain, you know, what would ignite confidence. But ultimately, the global economy started to come off the bottom.

ZARROLI: Within a few years, she says, sentiment began to change.

KROSBY: When things started to get less bad, you could see it; you could feel it. People started going back and buying vehicles. They started buying houses. And people just started having more confidence.

ZARROLI: By March 2013, the Dow Jones Industrial Average was hitting records again, and it has kept doing so multiple times since then. But the bull market has coincided with much greater public distrust of Wall Street.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PROTESTERS: (Chanting) Occupy Wall Street - all day, all week.

ZARROLI: In 2011, protesters began camping out in a small park in the financial district in Lower Manhattan. The Occupy Wall Street movement shined a spotlight on the fact that many Americans weren't benefiting from the riches of the stock market. Eighty four percent of all stocks owned by Americans belong to the wealthiest 10%. Only about half of Americans own stocks, even through their retirement funds. Many people were angry about how taxpayer money was used to rescue big banks that had caused the financial crisis.

Here is Vermont Senator and current Democratic presidential candidate Bernie Sanders.

(SOUNDBITE OF ARCHIVED RECORDING)

BERNIE SANDERS: The American people bailed out Wall Street; now it is time for Wall Street to come to the aid of the middle class of this country.

ZARROLI: Sanders and other legislators have called for a tax on Wall Street financial transactions. But the market has often seemed to overlook politics. When President Trump was elected, some analysts predicted his erratic style would send the market crashing. Instead, the exact opposite has happened; stocks have soared in value, coinciding with the longest economic expansion on record. All the major stock indexes are closing this year at record highs. David Kotok thinks stocks may actually have gone up too much.

KOTOK: I personally believe most of the healing is over. And if anything, we now have too much optimism and complacency and euphoria.

ZARROLI: For now, the euphoria is winning. But all bull markets come to an end; the only question is when.

Jim Zarroli, NPR News, New York.

(SOUNDBITE OF TROMBONE SHORTY'S "TRIPPED OUT SLIM") Transcript provided by NPR, Copyright NPR.