Benzinga takes a look back at a notable market-related moment that happened on this date.

What Happened?

On this day in 1996, Federal Reserve Chairman Alan Greenspan gave his famous “irrational exuberance” speech, warning investors of inflated stock prices roughly four years before the dot-com bubble burst.

Where Was The Market?

The S&P 500 closed at 744.38 and the Dow Jones Industrial Average closed at 6,381.94.

What Else Was Going On In The World?

A gallon of gas cost roughly $1.23, and “Independence Day” was the top grossing movie of the year.

Greenspan’s Speech

In a speech at the American Enterprise Institute in Washington, Greenspan subtly implied the U.S. stock market was approaching a level of concern. Here’s a bit of context from the speech:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

Investors keyed in on “irrational exuberance,” a phrase that Greenspan later admitted he had coined while working on a draft of the speech in a bathtub.

Greenspan intended to take some wind out of the market’s sails with the speech, and he initially did. The Dow dropped more than 1% the following day but recovered all of its losses shortly thereafter.

In the years since, the phrase “irrational exuberance” has become synonymous with financial market bubbles, especially after a book by the same name by Nobel Prize-winning economist Robert Shiller became a best-seller.

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