The 2008 Stock Market Crash: 56.8% Down, Five and a Half Years Back

How much did the stock market drop in 2008?

All index figures here use daily closes of the S&P 500 price index, which leaves out dividends. On that basis the full bear market took 17 months and 355 trading sessions, from October 9, 2007 to March 9, 2009. The low during the trading day came one session earlier, at 666.79 on Friday, March 6.

The fall was slow for a long time and then very fast. The index first closed 20% below its peak, the usual line for a bear market, on July 9, 2008. After the rescue of Bear Stearns in March, it even rallied to 1,426.63 on May 19, only 8.9% under the record, and plenty of investors decided the worst was over. Then September and October took away 9.1% and 16.9%. The index crossed the 50%-down mark on November 20, 2008, at 752.44, the lowest close of that year, and still had another 10% to fall by March.

For the calendar year the S&P 500 went from 1,468.36 to 903.25, a 38.5% loss. With dividends reinvested it was barely better: the S&P 500 total return index lost 37.0%. The Dow Jones industrials lost 33.8%, its worst year since 1931, according to ABC News.

2008 financial crisis timeline, with the market's reaction

Several of the famous events were announced on a weekend or after the closing bell, so the table shows the S&P 500 on the first session that could react to the news.

Two patterns stand out. Bailouts did not reliably lift stocks: the market rose after Fannie and Freddie were taken over, then dropped 4.7% a week later when Lehman was allowed to fail, fell 4.7% again the day after the AIG rescue, and kept dropping after TARP became law. The single worst reaction came from a vote, not a failure. The Bear Stearns rescue and the Lehman bankruptcy each have their own article with the share prices and the inside story.

The worst and best days of the 2008 stock market crash

In 2008 the S&P 500 moved more than 5% in a single session 18 times: 11 drops and 7 gains. It moved 3% or more on 42 of the year's 253 trading days. Some of the best days came within a week of the worst.

October 13 and October 28, 2008 are still the two largest one-day gains for the S&P 500 in our data, which starts in 1962. The three worst days of 2008 rank fourth to sixth over the same span, behind only Black Monday in October 1987 and two sessions in March 2020. October 15 came the morning the Census Bureau reported a 1.2% drop in September retail sales. December 1 was the day the National Bureau of Economic Research announced that a recession had begun in December 2007, a full year earlier; the financial sector ETF fell 16.7% that session.

The big up days were not a signal that the bottom was in. From the October 13 close, the index still fell another 32.6% to March 2009. The week of October 6 to 10 alone cost 18.2%.

Banks vs gold vs Treasuries: who lost what

The crisis started in the banking system, and bank shareholders took the worst of it. Over the exact peak-to-trough window of the S&P 500, Citigroup stock lost 97.6% even with dividends counted, Bank of America 92.2% and the Financial Select Sector SPDR fund (XLF) 81.6%. JPMorgan Chase, which ended up buying Bear Stearns and Washington Mutual's banking business, lost a comparatively mild 64.9%.

Gold was a hedge, though a bumpy one. In our data spot gold closed above $1,000 an ounce on March 17, 2008, the Monday after the Bear Stearns weekend. As investors sold almost everything that autumn, it fell to $714.65 by October 23, 28.8% below its March high, before finishing 2008 up 5.5%. By the March 2009 low it was 24% above its October 2007 level.

Long-dated Treasuries did the cleanest job. The 10-year yield fell from 4.67% at the stock market peak to 2.08% on December 18, 2008, and the long-bond fund TLT returned 34.0% in 2008 with its interest payments reinvested. That protection had a price later: once the panic eased, TLT fell 26.6% from its December 2008 high to June 2009. Cash was safe and earned little. A deposit paying the Fed funds rate would have returned about 3% over the whole 17-month slide.

Citigroup's path shows how violent bank stocks became. It jumped 58% on November 24, 2008, the first trading day after the government rescue, then fell 39% on February 27, 2009, when the Treasury's plan to take up to 36% of the bank made clear how much existing shareholders would be diluted. On March 5, 2009, Citi traded as low as 97 cents a share. Bank of America fell 29% on January 20, 2009, four days after the government announced a second round of support for it, tied to its purchase of Merrill Lynch.

What caused the 2008 crisis, in plain words

1. Housing. Lenders gave mortgages to borrowers who could only repay if house prices kept rising, often with low teaser rates that reset higher. When prices stopped rising, defaults climbed. New Century, one of the largest subprime lenders, went bankrupt in April 2007.
2. Securitization. Those loans did not stay with the lender. They were bundled into mortgage bonds, sliced into layers, rated and sold around the world. When defaults rose, nobody could say which bonds held the bad loans, which is exactly what BNP Paribas said in August 2007 when it froze three funds.
3. Leverage. The Financial Crisis Inquiry Commission found that the five big investment banks ran leverage as high as 40 to 1 by one measure, so a fall of less than 3% in their assets could wipe out their capital.
4. Short-term funding. Much of that borrowing was overnight and had to be rolled over every day. Once lenders doubted a firm, the money simply stopped, which is a bank run without a queue outside. Washington Mutual saw depositors pull $16.7 billion in a little over a week before it was seized.

Put together, losses on American mortgages turned into a crisis of confidence in the firms that held them. The commission's final verdict was blunt: the crisis was avoidable.

How the Fed and Washington responded

The Federal Reserve cut rates through the whole crisis. The effective Fed funds rate averaged 5.26% in July 2007 and 2.00% in August 2008, and after Lehman it collapsed: 0.97% in October, 0.39% in November. On December 16, 2008 the Fed set a target range of 0 to 0.25%, and the effective rate's monthly average stayed below 0.25% through December 2015, the month the Fed first raised rates after the crisis. Congress created TARP on October 3, and on October 14 the Treasury said it would buy up to $250 billion of bank preferred stock, half of it for nine large institutions.

The economy lagged the market in both directions. Unemployment was 4.7% at the October 2007 stock peak and 8.7% in March 2009 when stocks bottomed; it kept rising to 10.0% in October 2009, seven months after the low, and did not get back to 5% until September 2015. The NBER later dated the recession from December 2007 to June 2009, 18 months, the longest since World War II.

How long did it take the stock market to recover from 2008?

On price alone, five years and five and a half months. The S&P 500 closed at 1,569.19 on March 28, 2013, its first close above the October 2007 record. That was 1,376 trading sessions after the peak and about four years after the bottom. With dividends reinvested the wait was about a year shorter: the S&P 500 total return index first closed above its October 9, 2007 level on April 2, 2012.

The climb out of the hole was steep at the start. From the March 9 low the index gained 64.8% by the end of 2009 and 68.6% in the first twelve months. Anyone who waited for the economy to look healthy missed most of that: by the end of October 2009, the month unemployment peaked, the index was already 53% above its low. The October 2007 record itself was only 2.5% above the March 2000 dot-com peak, which is why 2000-2009 is remembered as the lost decade for American stocks. On October 1, 2026, the S&P 500 stood at 7,666.49, more than eleven times its 2009 low on price alone.

The index average hides huge gaps between survivors. JPMorgan, with dividends reinvested, first closed back above its October 2007 level in September 2009 and has since grown more than tenfold. Bank of America shareholders, even with dividends counted, had to wait until 2021, and the financial sector ETF roughly a decade. Citigroup was still more than 60% below its October 2007 level on October 1, 2026, dividends included. Lehman Brothers shareholders were wiped out, and Washington Mutual's were left with next to nothing. By contrast, the COVID crash of 2020 regained its old high within six months; in 2008 the banking system itself had to be recapitalized first.

How to play the 2008 crash blind

Every chart above was drawn knowing where March 2009 was. Living through it meant not knowing whether 752 in November was the bottom (it was not) or whether the 11.6% rally in October was the turn (it was not either). Blindfolio is a free browser game that puts you back in that position. Choose the 2000s as your start decade and you get a period of 10, 15 or 20 years beginning somewhere in that decade; the game picks the window, so the crash may arrive early, late, or in the middle of your round. With a chosen decade the year is shown on screen; leave the start on random for the fully blind version, where even the era is hidden.

Time runs week by week, and you can pause at any moment or jump ahead a month or a year. Real headlines of the era arrive as news, including inflation figures and Fed rate decisions. Companies carry codenames, and the catalog includes firms that did not survive, among them Lehman Brothers, Bear Stearns and Washington Mutual, next to banks that did, gold, Treasury bonds and a deposit that shows and pays the historical Fed funds rate, which drops to almost nothing at the end of 2008. At the end the real company names are revealed (and, in a random round, the era), and your result is set against the S&P 500 with dividends reinvested over the same period. For a whole class, have everyone pick the 2000s and the same round length: each student gets a different window inside the decade, and afterwards the class can compare who ran into the crash and how they handled it.