Recession Recoveries: 1990-91

What happened, how the markets came back, and the rewards for the patient investor.

The numbers. This one lasted eight months (about average for U.S. recessions), and it compares interestingly with the economic downturn today. Unemployment hit 7.8% during this recession, home prices in the nation’s ten largest metropolitan areas sank an average of 8.3%, and the stock market dropped 21%, with the decline bottoming out in October 1990.¹ As for GDP, the numbers were 0.0% for 3Q 1990, -3.0% for 4Q 1990, and -2.0% for 1Q 1991.²

 

The reasons. Some trace the roots of this recession all the way back to Black Monday in 1987. But most historians and economists point to falling real estate values, a decline in the commercial real estate market, and a credit crisis (featuring the infamous savings and loan collapses of the late 1980s). Oil prices also rose in early 1990 thanks to Iraq’s invasion and conquest of Kuwait, so consumer and investor confidence fell as a result of supply disruption and months of war in the Middle East.

The rebound. The DJIA was at 2,900.97 on June 1, 1990. It fell 21% in the subsequent downturn, but it hit a new milestone close (3,004.46) on April 17, 1991.³ The broad stock market returned 28% from October 1990 to March 1991.⁴ In November alone, stocks gained 6%.⁵

The real bull run was just ahead. Unbeknownst to stock market investors, the Dow would pass that 3,000 milestone and crest at 11,722.98 in less than nine years.⁶ The S&P 500 actually gained more than 5% during the recession; three years after the recession ended, it was up 26% and ten years later it was up 302%.⁷ The NASDAQ, of course, enjoyed a banner year in 1991 after going public, gaining nearly 57%; the tech stock boom was underway.⁸

The lesson. The markets do recover, often more quickly than we imagine – and historically, the persistent investor has been rewarded for his or her optimism. In the current economy, it helps to take a satisfying look back and see how the markets have rebounded and prospered since.

Citations. ¹ money.cnn.com/2008/02/08/pf/recession_proof.moneymag/index.htm               [2/27/08]

²bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=1990&LastYear=1991&3Place=N&Update=Update&JavaBox=no#Mid        [8/08]

³ answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average            [8/08]

⁴ usnews.com/articles/business/your-money/2008/04/11/recession-investing-is-it-time-to-buy.html                          [4/11/08]

⁵ smartmoney.com/common-sense/index.cfm?story=20080401-lessons-of-recession               [4/1/08]

⁶ answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average            [8/08]

⁷ investmentscientist.com/2008/01/25/recession-and-stock-market-performance/    [1/25/08]

⁸ news.cnet.com/2100-1023-235024.html               [12/29/99]

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