July 13th - This Day in Stock Market History

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Quote of the Day

The Most Important Quality for an Investor is Temperament, Not Intellect

– Warren Buffett. This day in 2012 would prove Buffett’s wisdom correct once again, when one of the nation’s best banks, led by Wall Street’s best and brightest, would announce billions in losses.

July 13th – This Day in Stock Market History

July 13, 1977 — The night the lights went out in New York, and the NYSE went dark

At roughly 8:37 p.m. ET on Wednesday, July 13, 1977, lightning struck a Consolidated Edison substation on the Hudson River, tripping circuit breakers north of New York City. Over the next hour a cascade of failures collapsed the entire Con Edison grid. By about 9:37 p.m., almost exactly an hour after the first strike, all five boroughs went dark.

The market consequence came the next day. With Lower Manhattan without power, the New York Stock Exchange was forced to close on Thursday, July 14, 1977 — one of the few weather/infrastructure-driven shutdowns of the world’s most important equity market.

July 13, 2007 – S&P 500 Recovers from the Dot-Com Bubble

On Friday, July 13, 2007, the S&P 500 finally breached its March 24, 2000 intraday high of 1,552.87, a symbolic reclaiming of ground lost in the dot-com collapse.

In hindsight, it was near the high-water mark of investor complacency as the mortgage crisis brewed. The Dow would push above 14,000 for the first time six days later, on July 19, 2007, and set its ultimate pre-crisis peak on October 9, 2007.

July 13, 2008 — Paulson’s “bazooka” to Save Freddie and Fannie

On Sunday, July 13, 2008, with the share prices of Fannie Mae and Freddie Mac having roughly halved in a single week, Treasury Secretary Henry Paulson announced an emergency plan to backstop the two mortgage giants.

The Treasury would offer an expanded line of credit, the right for Treasury to buy equity in the companies, and a consultative role for the Federal Reserve. The same day, the Fed authorized the Federal Reserve Bank of New York to lend to Freddie and Fannie if needed.

Two days later, testifying before the Senate Banking Committee on July 15, 2008, Paulson gave the metaphor that became the enduring label:

“If you have a bazooka in your pocket and people know it, you probably won’t have to take it out.”

Markets were unimpressed. The next day, Monday July 14, 2008, the Dow closed at 11,055.19 (−0.41%), and it fell further to 10,962.54 on Tuesday, July 15.

Ultimately, the bazooka would have to be taken out. On September 7th, 2008, Fannie and Freddie were placed into conservatorship under the newly created Federal Housing Finance Agency. Treasury took senior preferred stock and warrants for 79.9% of each firm’s common equity; existing common and preferred shareholders were nearly wiped out, with shares falling below $1.

Press Conference at Treasury Department Led by Treasury Secretary Henry Paulson, The U.S. National Archives via public domain search engine Picryl.com

The Treasury would ultimately provide $119.8 billion to Fannie Mae and $71.7 billion to Freddie Mac (per Congressional Research Service Report R44525).

July 13, 2012 – JPMorgan’s $5.8 Billion “London Whale” Trading Loss Revealed

On this day in 2012, JPMorgan Chase shocked the market by disclosing that losses from a bungled derivatives trade – known as the “London Whale” incident – had ballooned to $5.8 billion for the year.

Only two months earlier, CEO Jamie Dimon had initially estimated the trading loss at $2B, calling the situation “a tempest in a teapot.”

By July, however, the true scope was clear: the bank’s Chief Investment Office had made outsized, complex bets on credit derivatives (supposedly to hedge risks) that went disastrously wrong.

Despite the hefty hit to earnings, JPMorgan’s stock actually rose on the announcement day – perhaps because the bank also reported still-solid quarterly profits and reassured investors that the damage was contained.

Ultimately, the London Whale incident resulted in a dramatic decline in JPMorgan’s share price early in 2021. By July 2012, share prices have bottomed and would quickly recover. JPMorgan stock would end up 34% higher by the end of the year.