After Thursday’s mayhem in the stock market, how are you folks feeling? asks Shankar Sharma, founder of GQuant, at a gathering of industry experts and stakeholders attending Outlook Money’s 40 after 40 Retirement Expo 2024 at Pragati Maiden in New Delhi. The crowd cheers, ‘Bullish’! Sharma, known as the Big Bear of Dalal Street, then replies: ‘The mother of all bear markets is dead’, as he walks the attendees through the 100 years of global markets. 

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He recalls the ‘Wall Street crash of 1929’, also known as the Great Crash, Crash of ’29, or Black Tuesday, a major American stock market crash. The events that led to this crash began in September with a sharp decline in share prices on the New York Stock Exchange (NYSE) and ended in mid-November of 1929. “This is what we remember most in the long-term history of the historical events of the markets,” he says. 

However, Shankar explains this US market event by saying, ‘Global stock Markets are Baby’. He says, “In the context of world history, it is just around 100 years old. And just like babies, they have had their fair share of tantrums (i.e., bear markets).”

10 Cases Of Bear Market History Over The Years:

The index decline and reasons behind such market crash:

1. 1929: The Great Depression 

Index Decline: 89 per cent (Dow Jones Industrial Average)

Reason: Stock market speculation, the 1929 crash, bank failures, and poor monetary policy led to the most severe US economic depression in history.

2. 1946-47 WWII Recession

Index Decline: 23 per cent (Dow Jones Industrial Average)

Reason: Post-war inflation, economic adjustments, and concerns over rising interest rates led to a mild recession.

3. 1957 The Eisenhower Recession

Index Decline: 19.4 per cent (S&P 500)

Reason: The tightening monetary policy by the Federal Reserve and a decline in industrial production led to a market correction.

4. 1962 The Kennedy Slide

Index Decline: 27.1 per cent (S&P 500)

Reason: Concerns over inflation, rising interest rates, and the Cuban Missile Crisis triggered the market decline.

5. 1973-74: Oil Crisis

Index Decline: 48 per cent (S&P 500)

Reason: The oil embargo, inflation, and a recession-driven by high unemployment and stagnation led to a deep bear market.

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6. 1987 Black Monday (October 19, 1987)

Index Decline: 22.6 per cent in one day (Dow Jones Industrial Average)

Reason: Computerised trading, illiquidity, and concerns about rising inflation and interest rates.

7. 2000: Dot-com Bubble

Index Decline: 49.1 per cent (S&P 500)

Reason: A speculative bubble in technology stocks burst, leading to a prolonged bear market exacerbated by the 9/11 attacks and corporate scandals like Enron and WorldCom.

8. 2007-09: Financial Crisis 

Index Decline: 56.8 per cent (S&P 500)

Reason: Collapse of the US housing market, subprime mortgage crisis, and the failure of major financial institutions.

9. 2020: Pandemic

Index Decline: 33.9 per cent (S&P 500)

Reason: The global economic shutdown due to the COVID-19 pandemic led to a rapid sell-off

10. 2022 Bear Market

Index Decline: 20 per cent (S&P 500)

Reason: Rising inflation, Federal Reserve interest rate hikes, and global supply chain disruptions contributed to this bear market.40After40 Retirement Expo: How To Ensure Regular Income After Retirement? Here’s Navneet Batra’s Advice

What have been the five major reasons for bear markets?

Shankar highlights that there are five major reasons behind bear markets: excessive speculation or bubbles, Wars, Inflation and tightening monetary policy, Excessive leverage, and the pandemic.

Excessive Speculation or Bubbles: Historical bear markets have often been preceded by periods of excessive speculation, leading to market bubbles. This was notably seen in 1929 and the dot-com bubble in 2000.

Geopolitical Conflicts: Wars and geopolitical tensions can trigger bear markets. For instance, the Yom Kippur War led to an oil embargo in the 1970s, which caused a bear market, as did the recent Russia-Ukraine conflict.

Inflation and Monetary Tightening: Rising inflation often leads to monetary tightening by central banks, a common cause of bear markets. The rapid increase in interest rates can significantly impact market performance.

Excessive Leverage: High levels of leverage in financial institutions can lead to instability. For example, during the 2007-2008 financial crisis, excessive leverage among banks contributed to the market downturn.

Pandemics and Global Crises: Events like the COVID-19 pandemic can lead to sudden and severe market declines, as seen in early 2020 when markets fell sharply due to global shutdowns

Every Problem Has A Solution!

However, Shankar says that humans are quick learners. “With each experience, we get better at dealing with complex problems.” 

According to him, here are a few solutions the world has devised for each ‘Problem Cause’ individually:

Speculation: The world has grown wiser in dealing with overvalued spaces, and valuations have become more reasonable worldwide over time.

Banking Crisis: Regulators across the world have now imposed strict Capital norms on banks and large brokers to prevent a 2007-8 type of crisis.

Inflation: In general, the world has better supply chains today than it used to have, and the response to inflation is generally very swift.

Wars: In general, the world has become more comfortable with the notion of war, and we can see that even in the current madness, markets around the world have been very resilient

Oil: Given the scale of the Middle Eastern crisis in the past, we would have seen oil at 150.

But now we understand that most crises are short-lived, and hence the reactions of far less panicky.

Pandemic: During this unprecedented crisis, Shankar says we found a solution within six months.

The Villain Always Dies In The End!

Shankar emphasises that we have mastered the art of neutering bear market villains while stating that the top five reasons behind such market overhauls are always triumphed over.

“Speculation, inflation, war, disease - we have dealt with them all! In short, we can deal with Pran, Prem Chopra, Gulshan Grover, Dr. No, etc. The hero (the bull market) always triumphs in the end,” he remarks, except if a whole different villain comes along that shocks the world.