It was just four years ago when investors faced their most dramatic challenge of recent times. In September 2008, Lehman Brothers collapsed and other financial giants were teetering on the edge of a similar fate. The government stepped in with the Troubled Assets Relief Program (TARP) and the bailout helped avoid a deeper crisis. Yet investors paid a price. A severe bear market would see stocks (valued by broad measures like the Dow Jones Industrial Average and S&P 500) lose more than half of their value in a period of 18 months.
A recession also took hold in 2008, the most severe America has seen since the Great Depression of the 1930s. Two of the most notable aspects of the economic slide that impacted Americans were the housing market bust and the unemployment rate rising above 10 percent.
For some of us, the sense of fear about the markets might have dwindled, but hasn't disappeared since that time – though much has changed for the better. Here is a brief summary of what's happened in various aspects of the economy and the investment markets since those dark days four years ago:
Economic Growth The economy slipped into a recession in the summer of 2008, declining at an annualized rate of almost nine percent in the fourth quarter of that year, according to statistics from the Bureau of Economic Analysis. Positive economic growth did not return until mid-2009 and the recovery has remained modest since. The U.S. economy grew by three percent in 2010 but just 1.7 percent last year, and started this year with an annualized growth rate of about two percent. Things are moving in the right direction, but this is considered a very sluggish rate of recovery.
Jobs In the midst of the crisis four years ago, the unemployment rate was around six percent, according to the Bureau of Labor Statistics. As the recession deepened, job losses multiplied and unemployment topped out at over 10 percent in October 2009. Now it stands at around eight percent, still higher than at any time since 1983, but an improvement from several years ago. Positive job growth began in 2009 and gained some steam in late 2011 before slowing recently. Again, progress has been made, but it could be better.
Inflation Through the recession and the recovery, the inflation rate has remained relatively modest. After a cost of living hike of just under four percent in 2008, it dropped to 1.5 percent in 2010 and stood at three percent for 2011 (according to the Bureau of Labor Statistics' Consumer Price Index). This is considered a modest rate of inflation that is not producing any significant economic concerns.
Housing We continue to pay the price for a housing market that overheated over the last decade when the Case-Shiller Home Price Composite U.S. Index peaked. By 2008, it had fallen dramatically, and nationally home values continued to decline through 2011, losing on average one-third of their value. Foreclosure levels remain high, and the housing market is not expected to show significant strength anytime soon.
Investment Markets In September 2008, the Dow Jones Industrial Average stood at 10,850, already down about 25 percent from its peak less than a year earlier. It would proceed to dip to 6,547 by March, 2009. Since then the Dow has steadily recovered much of that lost ground, reaching above 13,000 in recent months before retreating somewhat in light of political and economic turmoil in Europe. The performance of individual stocks, mutual funds, ETFs or other investments varies. Bond markets have been stronger performers in that same time period. When the financial crisis hit in September 2008, the yield on the benchmark 10-year U.S. Treasury note stood at 3.82 percent. It has dropped well below two percent in 2012, and lower yields mean higher values for existing bonds. So the slow pace of economic recovery has actually benefited the bond market in recent times.
The road from here We've come a long way from the crisis environment that existed in 2008. While the economy and investors are still feeling the impact, it is also notable that both have shown tremendous resiliency. Despite moving in fits and starts, the U.S. economy has managed to avoid another recession since 2009 and stocks have gradually recovered much of the ground that was lost during the meltdown. More challenges may lay ahead, with Europe's debt problems and worries over the slowing pace of economic expansion in China and other places looming over the global marketplace. But our experience since 2008 demonstrates why a patient, long-term approach to investing may be the most effective way to react to challenges facing the economy, no matter how severe they are. For advice on investing, consider working with a financial professional.
Allan W. Cornman,, is a Financial Advisor Certified Financial Planner practitioner with Ameriprise Financial Services, Inc. in Reading and Schuylkill Haven. He specializes in fee-based financial planning and asset management strategies and has been in practice for 16 years. He can be contacted at 610-926-6649, ameripriseadvisors.com/allan.w.cornman. He is a member of the Northeast Berks Chamber of Commerce.