OPEC members ( dubbed “ OAPEC ”) retaliated by imposing an oil embargo on the United States . Contributing to the spike in oil prices was the devaluation of the US dollar in the wake of the collapse of the Bretton Woods agreement two years earlier .
The impact reverberated through the US economy , with the second recession in three years starting in November 1973 . Arthur Burns , chairman of the Federal Reserve , noted that the timing of the oil crisis was particularly damaging . At the time , wholesale prices for industrial commodities were already rising at over 10 % annually , and industrial capacity was stretched thin . Additionally , the domestic oil industry lacked the capacity to ramp up production to meet the demand caused by the embargo , leading to severe price increases . Energy costs soared , leading the federal government to implement energy conservation measures , including speed limits and rationing programs . ( The crisis led to the creation of the Strategic Petroleum Reserve and among the inaugural efforts by the government to investigate alternative energy sources to reduce reliance on foreign oil .)
From 1973 through 1974 , a mix of persistent and emerging bearish factors kept surfacing , leaving little incentive to hold stocks beyond their declining prices — yet even those continued to drop . It was a macabre time for investors .
Bulls Resurgent
The first half of 1974 was grim . US Gross Domestic Product ( GDP ) fell by 3.4 % in the first quarter , with inflation surpassing 10 %. The second quarter was not much better : although GDP rose a meager 1 %, inflation reached 11 %. By August 1974 , the average US stock had fallen 70 % since 1968 , but more downside was en route . Facing imminent impeachment , Nixon resigned from the presidency on August 8 , 1974 . The S & P 500 closed that day at 81.57 and fell to 63.39 by October 1 . Around that time , a New York Times reporter bore witness to one of what must have been an increasingly common scene during the fall of 1974 .
After the close on the New York Stock Exchange … a vice president of a Wall Street brokerage firm stopped by to check on the Dow Jones ticker that was humming with gentle , cricket-like chirps . “ Good Lord !”
Trading on the floor of the New York Stock Exchange , 1973 .
he exclaimed . “ The Dow is Down another 16½ points !” The blue-chip average limped in that day with a finish at 671.54 , rounding out a decline of 126 points within 14 trading sessions , a period that encompassed President Ford ’ s ascendancy to the White House . [ He ] took a sip of cold coffee and grunted . “ You know the trouble with this market ?” he said . “ The grinding away of prices . Every time you think it ’ s going to improve , you raise your head — and it gets handed back to you on a platter .”
On Friday , December 6 , 1974 , Carl Douglas ’ s “ Kung Fu Fighting ” was at the top of the music charts . All in the Family , M * A * S * H and Kojak were among the most watched television programs . And on that day , the US Bureau of Labor Statistics announced that the unemployment rate had reached 6.5 %. The DJIA dropped to 577.60 , its lowest close since the Cuban Missile Crisis 12 years earlier . And this — not that anyone would have bet at that point — was the lowest trough in the 1973 – 1974 bear market . The deepest and most agonizing bear market since the Great Depression had finally come to an end . Even at that point , though , things would not improve for nearly a decade ; the 1973 to 1974 bear market was the nastiest part of a trough for the US economy . Between December 1969 and November 1982 , the economy contracted for 49 months .
The DJIA crossed the 1,000 level for the first time just before Thanksgiving in November 1972 , and then declined by essentially half over the next two years . But even after climbing off the December 1974 lows , the 1,000 level would only be decisively reclaimed in October 1982 : a full decade , and two severe economic recessions , later .
At 23 months , the 1973 – 1974 bear market is the second longest in the post-war period ( bested by the 31-month slump between March 2000 and October 2002 ) and the third deepest in terms of percentage decline , bested only by the Great Financial Crisis slide ( a 56 % drop from October 2007 to March 2009 ) and the aforementioned Dot Com bust / September 11 attacks period ( a 49 % slide ). Of particular note is the nature of the 1973 – 1974 bear market where volatility is concerned : none of the top 20 largest one-day percent changes ( up or down ), largest one-day index point changes ( up or down ), largest intraday index point swings or largest intraday point changes with turnovers ( positive to negative or vice versa ) occurred within that time period . Stock prices just slowly , incessantly , melted away .
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