variability and less predictability than the market trough to economy
trough lead time.
There are two ways to treat the 2000 to 2002 bear market. The first
interpretation is that there was one bear market that peaked on a total re-
turn basis on September 1, 2000, and bottomed on October 9, 2002, for a
loss of 47.4 percent, or there were two bear markets: a drop of 35.7 per-
cent from September 1, 2000, through September 21, 2001, 10 days after
the 9/11 terrorist attacks, then a subsequent rally of 22.1 percent to
March 19, 2002, and finally another bear market of 33.0 percent, ending
in October.
The second interpretation is more in line with the economic data,
which show that the 2001 recession that began in March ended in No-
vember, two months after the stock market began its rebound. Under
this interpretation, however, the second leg of the bear market was the
second largest decline in U.S. history (after the 35.1 percent drop that ac-
companied the stock crash of 1987), which did not end in a recession.^6CHAPTER 12 Stocks and the Business Cycle 213
TABLE 12–2
False Alarms by Stock Market (Postwar Declines of 10 Percent or More in the Dow
Jones Industrial Average When No Recession Followed within 12 Months)(^6) To be sure, there was some controversy about the NBER timing of the 2001 recession. The economy
did bounce back from the September 2001 terrorist attacks by year-end, but in the ensuing months
the recovery was very weak by historical norms and GDP growth in the fourth quarter of 2002 was
essentially zero. As noted earlier in this chapter, the NBER did not indicate that November 2001
ended the 2001 recession until July 2003, when the economy had noticeably picked up. The stock
market rally that began in October 2002 did precede the subsequent acceleration of economic
growth, but it did not signal the end of the NBER-dated recession.