The top 25 stock market events of the last 25 years -3-

The problems began in 2009 when a new Greek government revealed that the country had run much larger budget deficits than previously announced. The pain has spread, with countries like Ireland and Spain seeing their previously healthy fiscal balance sheets wiped out by the collapse of massive housing bubbles. Chained to a common currency, devastated economies were forced to embark on internal devaluations in an effort to regain competitiveness.

A “catastrophic loop” has become central to the eurozone debt crisis, which came to a head in 2012 when borrowing costs for Spain, the eurozone’s fourth-largest economy, and Italy, the third in the region, soared. Rising yields on sovereign debt issued by troubled eurozone countries also reflected fears of “redenomination”, in which a country could leave the euro and see its creditors repaid in pesos, drachmas or liras replenished. . This led to a bold move by European Central Bank President Mario Draghi, who made an unwritten promise during a speech in London in July 2012: “Within our mandate, the ECB stands ready to do whatever it takes to preserve the euro,” he said.

The ECB proceeded to craft an emergency bond buying program that went well beyond anything it had used before. The program, known as Direct Money Transactions, or OMT, was never used, but its existence and the accompanying formation of a eurozone bailout mechanism served to calm the storm. But that was not the end of the story. A showdown over another bailout for Greece in 2015 again raised the specter of a country exiting the euro, and the ECB is now scrambling to come up with a new ‘anti-fragmentation’ mechanism that will act as a backstop. to prevent the yields of the most indebted countries from soaring. as it begins to raise interest rates in response to inflation.

12. The new tools of monetary policy

When the United States plunged into the Great Recession of 2007-2009, the dawn of a bold new era emerged at the Federal Reserve. The one whose credo remains controversial to this day.

Out was the Fed’s conservative approach to managing the economy. It was a new and aggressive effort to spur growth and a newfound openness to the US central bank that was often invisible to the public.

The first big change came in 2008. Fearing that near-zero short-term interest rates weren’t doing enough to revive the economy, the Fed adopted a strategy known as QE, or quantitative easing. The Fed started buying government bonds and private securities made up of a large number of pooled real estate mortgages. These purchases ultimately amounted to trillions of dollars. The goal: flood the economy with money, drive down long-term interest rates, boost lending and encourage investors to buy riskier assets like stocks.

The Fed has used QE several times in the years since, most recently during the coronavirus pandemic. Its balance sheet has grown from less than $1 trillion before the Great Recession to $9 trillion.

The second big change: the use of so-called forward guidance to keep interest rates from rising as the economy improves. For the first time ever, the Fed would explicitly tell investors what it planned to do and when.

The final tool in the Fed’s new toolkit was an effort to engage with the public, a huge departure from a historically secretive central bank. Chairman Ben Bernanke began in 2011 to hold regular press conferences to explain the bank’s actions.

Did it work?

Proponents argue that the Fed overhaul boosted the economy and saved it from tougher times. Critics say the bank’s decisions more than a decade ago laid the groundwork for the current inflation spurt, the highest in 40 years.

13. The Flash Crash

It was a 21st century crash. At around 2:32 p.m. in New York on May 6, 2010, the stock market suffered a short but shocking drop. The Dow Jones Industrial Average suddenly extended a 600-point drop before recovering most of the decline within minutes. At the worst of the afternoon freefall, the major stock indexes were all down 8%.

Strangely, there was nothing to hold on to: no sudden geopolitical catastrophe, no hawkish statements from the Federal Reserve, no news that could be seen as a catalyst. As indices fell, the carnage in individual stocks was even more alarming. Shares in Accenture, for example, fell from around $38 to a mere penny in two minutes, although those trades were later reversed. The incident rocked brokers, exchanges and regulators.

A few months later, a joint report by the Securities and Exchange Commission and the Commodity Futures Trading Commission blamed a large fundamental trader, whom they did not identify. Regulators said the trader executed a large sell order – valued at around $4.1 billion – using an automated execution algorithm at a time in the afternoon when markets were already highly stressed. . The report concluded that the combined selling pressure from the huge order pushed high-frequency traders to drive down the price of the E-Mini S&P 500 futures market at the same time it pushed liquidity providers and market makers to withdraw from individual stocks.

In 2015, a US grand jury indicted Navinder Singh Sarao, a London-based futures trader, on charges related to the crash. Described in court documents as autistic, he was convicted and in 2020 sentenced to time served and a year in house arrest. Meanwhile, individual stock circuit breakers and new rules have been put in place to prevent the kinds of liquidity evaporations that have contributed to the downdraft, while researchers have questioned the role trading plays in high frequency in the markets.

14. The Rise of China

In 1999, Foreign Affairs, the august journal of international affairs, could credibly, if controversially, ask, “Does China matter?” But over the next decade, China became a very significant part of MarketWatch’s coverage. For our readers, China meant a lot.

The rise of China, especially as an economic superpower, was something no investor could ignore. While facing inevitable growth challenges, China overtook the United States as the world’s largest auto market, overtook Japan as the world’s second-largest economy, and served as a crucial engine of growth, providing a economic stimulus during the financial crisis that helped pull the global economy. back from the edge of the abyss. China’s transformation has been built around its ability to become an exporting power, dependent on global growth.

By becoming the final assembly point for much of the world’s goods, China has been at the center of a backlash against globalization. Quarrels over the weakness of its currency and tactics have served as flashpoints of controversy. In 2017, President Donald Trump opened a full-fledged, high-stakes trade war against China, which frequently dominated markets. President Joe Biden continues to debate whether to cancel some tariffs.

The U.S. Securities and Exchange Commission, meanwhile, has a list of more than 250 Chinese companies, including e-commerce giant Alibaba, that could be delisted from Wall Street for failing to meet audit requirements. financial. Meanwhile, US-China tensions have escalated, with China angrily denouncing a visit by US House Speaker Nancy Pelosi in August amid growing fears that Beijing could possibly invade the island. autonomous territory which it considers to be part of its territory.

15. The Facebook IPO

In May 2012, Facebook’s IPO made history, with the tech giant becoming the first company to go public with a $100 billion valuation. Facebook’s IPO was so big that the Nasdaq moved its opening ceremony to Facebook’s California headquarters, where Mark Zuckerberg cheered along with hundreds of his employees.

It was the most anticipated IPO in years. The IPO market had been in turmoil since the financial crisis, and bankers were counting on Facebook to reignite interest in big tech deals.

For years, Zuckerberg avoided the IPO by enticing big players to privately invest in Facebook at exorbitant valuations. The delay led to grumbling and parting among employees, and comments from MarketWatch that Zuckerberg may have waited too long. The wait has also made it difficult to actually value Facebook.

On the day of the IPO, in which the company raised $18 billion, MarketWatch hosted a dedicated page to feature all the staff coverage, with one analyst likening the event to Halley’s Comet. MarketWatch’s financial and technology columnists were united in skepticism about the deal, based on its founder’s control, inconsistent finances and slowing growth rates. There were serious questions about Facebook’s ongoing transition to mobile.

IPO day turned into a flop. Underwriting investment bankers rushed during the trading day to support the stock and prevent it from falling below the $38 offer price, amid technical issues at the Nasdaq and an ultimate consensus according to which there were too many shares issued by greedy investment bankers and society. Shares of Facebook closed that day at $38.23, just 23 cents above its IPO price.

Over the next few months, critics blasted Facebook and its stock traded 30% below the bid in its first year of trading. But those who doubted Facebook in the long run were wrong. Facebook, now known as Meta Platforms (META), successfully transitioned to mobile, sparking incredible growth, and Facebook set the standard for private market fundraising that now dominates Silicon Valley. .

16. The shale boom in the United States

In September 2013, as the United States began to produce more oil than it imported, a MarketWatch headline declared that “US oil independence is not just a dream.” A veteran energy trader told MarketWatch at the time that “the US oil boom is only in the second round.”

Over the lifetime of MarketWatch, the United States has gone from a net importer of oil to an exporter, producing up to 13 million barrels per day. The national security implications were profound, and the extra production kept oil prices lower, fueling the economy and the stock market.

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10-15-22 0913ET

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