Recession Recoveries: 2001

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

 The numbers. According to the National Bureau of Economic Research (which has made a point of chronicling all U.S. recessions), this downturn lasted from March to November of 2001.¹ It is one of the milder recessions on record; in fact, real consumer disposable income actually grew during this eight-month period. Gross domestic product fluctuated across the year: GDP was -0.5% in the 1Q, +1.2 in the 2Q, -1.4 in the 3Q, and +1.6 in 4Q 2001.² The Dow Jones Industrial Average fell 7.2% across 2001.³ Unemployment rose from 4.3% to 5.5% during this period, eventually cresting at 6.3% in June 2003.⁴ By the first half of the year, inflation had more than doubled from a 1998 low of 1.5%.⁵ It was the housing sector that kept the economy going – and in many respects, sparked growth and recovery. The Federal Reserve cut the federal funds rate 11 times during the year; it fell from 6.5% to 1.75%.⁶

 

The reasons. The tragedy of 9/11 had an effect on the markets, but it was just part of the economic story behind this downturn. The dot-com bust and the subsequent recoil of the NASDAQ had opened the door – that index continued its descent, dropping from 2,341 at the start of 2001 to 1,577 at the end of the year.⁷ Accounting scandals (most notably at Enron and WorldCom) didn’t help either.

The rebound. The stock market struggled through 2001 and 2002, but proved its resilience. After the closure of the stock market following 9/11, the Dow fell 685 points to 8920 on September 17 and lost 14.26% in a week to close at 8,235 on September 21. But the DJIA closed 2001 at 10,021 – a 21% rebound in less than three months. On October 9, 2002, the Dow closed at 7,286. But then the index closed October at 8,397 – a 15.25% gain from the October 9 trough in 22 days, and a 10.6% rise for the month.⁸ Those who got out of stocks soon wanted back in: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.⁹

The lesson. The markets do recover, often dramatically – and historically, the persistent investor has been rewarded for his or her optimism and perseverance. In the current economy, it helps to take a satisfying look back and see how the markets have rebounded and prospered after a downturn.

Citations. ¹ nber.org/cycles.html            [8/28/08]

²bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=2001&LastYear=2001&3Place=N&Update=Update&JavaBox=no#Mid        [8/28/08]

³ the-privateer.com/chart/dow-long.html  [8/08]

⁴ sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/01/24/BUM3UKED0.DTL                    [1/24/08]

⁵ realtor.org/intlprof.nsf/1c8e38bf483f911d8625681100462df1/b171ee782198e89e86256b10006a8c3c?OpenDocument                     [2002]

⁷ the-privateer.com/rates.html [8/5/08]

⁷ finance.yahoo.com/q/hp?s=%5ENDX&a=00&b=1&c=2001&d=11&e=31&f=2001&g=m     [8/28/08]

⁸ the-privateer.com/chart/dow-long.html  [8/28/08]

⁹ upi.com/Business_News/2003/12/31/UPI_NewsTrack_Business/UPI-75601072911443/        [12/31/03]

 

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