point in the evolution of financial markets toward greater efficiency and automation .
But before that , the paperwork debacle exposed a handful of vulnerabilities which would prove inflammatory in the upcoming slump . At the dawn of the 1970s , most Wall Street firms were still partnerships , and as such many were essentially run at arm ’ s length . Further , many of those passively managed firms were undercapitalized . As Wyatt Wells notes in his Certificates and Computers : The Remaking of Wall Street , 1967 to 1971 , “ Whereas New York Stock Exchange volume totaled $ 150 billion in 1968 , those members doing business with the public had only $ 4 billion in capital … As long as prosperity reigned the industry did fine , but its cushion against hard times was thin .” The ensuing consolidation , which saw over 100 New York Stock Exchange member firms either liquidate or get acquired , likely contributed to the 1973 – 1974 bear market by weakening the market ’ s infrastructure and reducing the ability of Wall Street broadly to absorb financial shocks .
The United States was in recession through most of 1970 , and a precursor , “ mini ” bear market occurred in the spring
of that year . In the 59 market sessions between March 3 , 1970 and May 26 , 1970 , the S & P 500 only had 16 positive finishes — among the lowest percentage of quarterly positive closes in the pre-1973 – 1974 bear market period .
The Bears Seize Control
In August 1971 , the United States abandoned the Bretton Woods agreement when President Richard Nixon suspended the convertibility of the dollar into gold , effectively dismantling the post-World War II international monetary system . This decision came after years of pressure on US gold reserves , exacerbated by the collapse of the London Gold Pool in 1968 , paved the way for the shift to a fiat currency system .
Stock prices rose again and then , throughout much of 1971 and 1972 , traded sideways , even when in June 1972 five men were arrested for breaking into the Democratic National Committee headquarters at the Watergate complex in Washington , DC . By late 1972 , US stock markets seemed to shrug off the arrival of the fiat currency dollar and the still-unfolding story of the Watergate shenanigans . But by the start of 1973 , the US Bureau of Labor Statistics Consumer Price Index ( year-over-year ) had risen from 2.7 % in June 1972 to 3.7 %. By the end of the summer of 1973 , it was over 7 %.
The US exit from Vietnam in 1973 contributed to uncertainty in the economy and financial markets , as war-related spending began to wind down , adding to inflationary pressures and straining fiscal resources . On top of that , a sense of malaise and disillusionment grew over the realization that the war effort , not least of which the human toll , had essentially been futile .
On October 6 , 1973 , Egyptian and Syrian forces launched a surprise attack on Israeli positions in the Sinai and Golan Heights , seeking to reclaim territory lost in the 1967 war . The attack , timed to coincide with Yom Kippur , caught Israeli forces off guard due to intelligence failures , allowing Egypt to breach Israeli defenses across the Suez Canal and Syria to make significant gains in the Golan Heights . Israeli forces initially struggled , particularly in the Golan , but by October 9 , they shifted to a counteroffensive . With US military aid arriving on October 10 , Israel regained much of the territory it lost early on . A ceasefire was announced on October 22 , 1973 , but not before Arab
National Archives and Records Administration
Gas station in Oregon with “ Pumps Closed ” sign in October 1973 , due to the gasoline shortage that occurred during the 1973 – 1974 bear market .
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