The Long Good Buy by Peter C. Oppenheimer

Author:Peter C. Oppenheimer [Oppenheimer, Peter C.]
Language: eng
Format: epub
ISBN: 9781119689003
Publisher: Wiley
Published: 2020-05-04T00:00:00+00:00

2009 Onwards: The Start of QE and the ‘Great Moderation’

Chapter 9 examines some of the specific conditions that have followed the financial crisis in more detail, but this bull market has also been particularly strong and long. Having collapsed by 57% from its 2007 peak, the S&P 500 started a powerful recovery that was to result in the longest bull market in history. Part of the strength of the recovery, as with that from the early 1990s, was a function of the scale of the declines in the economy and market that had preceded it. In the US in particular, the collapse in the housing market had resulted in a huge loss of household wealth. With more than $1 trillion in sub-prime mortgages outstanding, the spread of losses throughout the economy and financial institutions was significant. At the same time, according to then Fed chairman Ben Bernanke, ‘too-big-to-fail financial institutions were both a source (though by no means the only source) of the crisis and among the primary impediments to policymakers’ efforts to contain it’.7 Between 2007 and 2010, the median wealth of a household in the United States fell 44%, resulting in levels falling below those of 1969.8

But the action put in place to contain the crisis was unprecedented. In March 2009, the Federal Reserve announced plans to spend $1 trillion in newly created dollars on the back of government and mortgage bonds to push interest rates lower through its programme of ‘quantitative’ easing, which was critical in triggering the rebound in the stock markets.

A second and important contributor to this bull market has been the assent of large technology companies which, in the US equity market in particular, have become the largest sector and have enjoyed spectacular returns (a topic covered in more detail in chapter 11).

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