Anniversaries of extraordinary financial and economic events always serve to provide a small glimpse into the short-termism we are in. Last Thursday, September 15, marked fourteen years of the bankruptcy of investment bank Lehman Brothers, which brought the system as we know it to the brink of bankruptcy and created the great recession of 2009 that was about to explode three years later. raise the euro. Only the unique intervention of governments, injecting money into the economy, and central banks managed to cushion the blow. As of 2013, world economies, including Spain, began a new period of expansion that would last until the pandemic in March 2020. This was a new brake on which the markets would recover quickly, it was temporary… until the epidemic. war in Ukraine.
How did the stock markets react to these events and how are they reacting now? What can be expected in the long run? Some numbers. As a reference point, I’m considering the S&P 500 index, which has the 500 most capitalized companies in the US.
In the weeks before Lehman’s bankruptcy, the S&P 500 was trading around 1,300 points, down from an all-time high of 1,570 at the end of October 2007. After September 15, it is in the midst of the global storm that has forced many governments into bankruptcy. The S&P 500, which bailed out and nationalized major financial institutions, bottomed out with 700 points in March 2009. The decrease in just six months was 46%. That March, no one was sure how much further the stock market could drop. There were still many dark clouds on the horizon. In the United States, Barack Obama had barely been president for two months, and in Europe, Angela Merkel emerged as the iron leader. Mario Draghi, the future savior of the euro as head of the European Central Bank, was still president of the Bank of Italy.
With the ups and downs, the S&P 500 started to rise gradually. Investors have bet on the Stock Exchange again, especially with new tech giants developing a new way of living and working. Apple would cement itself as the most valuable company on the planet. From these 700 points in March 2009, 3,400 points were reached in January 2020, when covid has already started to take shape in Wuhan, China. The first two weeks of March were dizzying for the world stock markets, which were hurt by the onset of quarantine measures across the planet and a period in which no solution was seen. After the 2008 financial crisis came the health crisis. In a few days of March, the S&P 500 fell 33% to 2,300 points. It was the end of the stock market enthusiasm of recent years.
And… however, as in 2009, in that hopeless March 2020 the S&P 500 hit rock bottom and began its climb (let’s see, even fingers crossed) that will accelerate by the end of the year as vaccines are found and the pandemic is contained (fingers crossed) thanks to research. In the midst of a world whose main economies have fallen by an average of 10%, an investor spree has begun that has brought major indexes into historical records (exception: the limping Ibex 35). Again, tech companies led this investor optimism. There was talk of the roaring twenties. The S&P 500 reached 4,766 points on December 21, 2021. It remains at an all-time high. Those who invested 10,000 euros in this index in March 2009 represented 68,000 euros at the end of last year.
With these came Vladimir Putin and the war drums came true. On February 24, 2022, another crisis began. This geopolitical and energy time has been accompanied by the return of inflation and the continued rise in interest rates. How does the S&P 500 reflect the situation? It has already dropped 18% from its all-time high to 3,900 points. Even with brief improvements, there was less severe regression than before. This time, it was the technological values that were most affected. In some cases, investors made a profit. Capital gains have been phenomenal.
Has this index, which is the measure of world stock markets, hit the bottom? The answer is very simple: no one knows. Unlike the 2008 crisis and the pandemic, where there are rational reasons to think it will be a medium-term solution; On this occasion, a wide variety of reactions were produced. Who can predict Putin’s next reaction? Will central banks be able to control inflation with successive rate hikes? How bad will the energy crisis be? The variables are many, and among professional traders, psychology and sensations are superior to the ability to predict when the exit from the narrow alley of the world will occur. For those who see the bottle half full, there is always the best argument: In the end, sooner or later recovery will come. History sets an example.