The Miracle of Time: Lehman Two Years Later
Tuesday, September 14, 2010 at 05:30PM Everyone has those events in their lives where they remember exactly where they were and what they were doing when they heard the news. While many people remember exactly where they were sitting and what they were drinking when their favorite team won the World Series, most of these events are usually associated with tragedies.
Depending on your age, different people remember different dates more clearly than others. For some, it’s December 7th, 1941, while others remember November 22, 1963. For younger Americans, many remember sitting in their classroom on January 28th, 1986 and watching the Space Shuttle Challenger explosion right there on live TV. More recently, the morning of September 11th, 2001 is still fresh in most people’s memories.
The bankruptcy of Lehman Brothers last September doesn’t warrant being mentioned in the same context as any of the above events. However, if you ask most people who work in the Financial sector, they clearly remember that sunny and unseasonably warm September Sunday afternoon when Bank of America agreed to buy Merrill Lynch and it became clear that Lehman Brothers would be filing for bankruptcy the following morning.
With two years now having past since the collpase of Lehman Brothers, it is actually amazing how far the equity market has come since that Monday morning when the entire economy seemed to be on the brink. In the table below, we highlight how far the market and each of the ten major sectors declined from their pre-Lehman closing levels to their 2009 lows. We then calculated how much each sector has rallied from the lows up until now. Finally, we also looked to see how much further the S&P 500 and each of its ten sectors would have to rally to get back to their pre-Lehman levels.
Amazingly, two sectors (Consumer Discretionary and Technology) are already trading back above their pre-Lehman levels, while the S&P 500 needs to rally less than 12% to reach that milestone. Financials have seen the sharpest rally off the lows with a gain of over 140%, but they have the furthest row to hoe as the sector still needs an additional rally of 43% before they can put the pain of the financial crisis behind them.
When we first called for a rebound in equity prices back to their pre-Lehman levels back in June of 2009, to say our view was met with skepticism from clients would be an understatement. We remember one client literally spitting out his soup when we first raised the idea to him. Since then, however, a lot has changed, and just as it does in life, time seems to heel all wounds.
Reader Comments (4)
"How much further the S&P 500...has to rally to get back to pre-Lehman levels?" Really? It's only been 2 years and nothing has been done structurally with regard to the risks that ballooned the economy/markets to unrealistic levels. And yet the "get back to" mantra pervades discussions today throughout finance and economics. What part of bubble don't people understand. Surpassing bubble levels is probably best discussed with generational timelines--certainly not something under at a decade. Chillax you all.
Not to be picky, but you hoe rows (in a field), not roads.
Time seems to HEAL all wounds; HEELing is for hounds.
Dude, you need to keep an eye out for spam here, too.
When you fell, stand and keep going. I think the bankruptcy of the Lehman Brothers last September is a challenge to all especially the management. I commend them for they did not stop and they face the challenge and now they are back into the game. Isn't that so inspiring? I bet what happened made the Lehman Brothers stronger and more ready for anything.