Great Depression to COVID: Top 5 market crashes in American history
- The stock market has had five significant collapses in its history
- A market crash is a dramatic, unexpected collapse in stock values
- Investors may experience another crash in the upcoming weeks
The U.S. stock market got off to its worst start this year since 1939, and some analysts worry that this is only the beginning. Many investors are concerned that they will experience another crash in upcoming weeks or days due to the rumblings of an imminent recession, inflation at its peak in more than 40 years, and turbulent trading days.
A market crash is a dramatic, unexpected collapse in stock values induced by a multitude of circumstances. There is no universal definition of what defines a crash.
The stock market has had five significant collapses in its history, and each time it has recovered. The most important variable is how long it took to bounce back.
The 1929 stock market crash ended the Roaring Twenties and initiated the Great Depression. The stock market shrank so drastically that it would not completely recover its pre-crash worth until 1954.
In that year, stock prices started to decline in September, but on the 28th and 29th of October, two consecutive days, they fell by around 13% and another roughly 12%. The largest two-day loss in history, these days are now referred to as Black Monday and Black Tuesday. Investors were sufficiently alarmed to liquidate their stocks in a panic.
A few weeks later, the Dow had lost half of its value (the S&P 500 and Nasdaq were not considered indicators at the time) and had entered a lengthy bear market. The market reached its ultimate bottom in 1932, falling 89% from its high.
It was a turbulent time in history, marked by the Great Depression, the Dust Bowl, World War II, and other upsetting global crises. Hundreds of businesses declared bankruptcy.
This was one of the greatest crashes in the history of the United States. The crash was caused by a succession of events rather than a single incident.
First, various financial changes were implemented, notably the de-pegging or de-linking of the dollar from gold, which weakened the currency's stability and led to runaway inflation. Parallel to this, there was an economic downturn, followed by the 1973 oil crisis, in which the oil price nearly quadrupled, triggering inflation. It took the market around 5 years to recover.
All of these factors conspired to cause a crisis in which the market fell by 48% and took around 21 months to recover.
When the twenty-first century arrived, the stock market was still reeling from the fallout of the "dot-com bubble," which was driven by the massive overvaluation of technology companies in the late 1990s. A bubble is generated by values that do not correspond to a company's financial soundness, and it is frequently fueled by enthusiastic investors looking for the next great thing - even if the company does not have revenue. This was true for several of these IT firms.
The Nasdaq Composite Index's tech stocks had their first significant drop with this one. The Nasdaq increased by more than 500% between 1995 and 2000. By 2002, the index had dropped about 77% and would not return to its previous peak for nearly 15 years.
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The reason of the disaster was banks' poor lending procedures for mortgages (especially subprime mortgages), which had a knock-on impact across the economy, resulting in the greatest crash since the Great Depression. As the number of residential house foreclosures increased, so did the national unemployment rate. The S&P 500 plunged roughly 57% from its peak, dragging down worldwide markets with it.
Government bailouts, new financial infusions into the economy, and interest rates lowered to historically low levels all contributed to the recovery.
The market took almost 17 months to recover. When it occurred, 2009 saw the start of one of the longest and most successful bull runs in history, which extended all the way through 2020.
The most recent crash that many investors are still thinking about is the one prompted by the COVID-19 outbreak. As a result of the virus, worldwide governments shut down their economies in order to prevent its spread, triggering an economic downturn that shook investors.
Unlike the previous crashes on this list, this one happened rapidly and recovered promptly. The stock market dropped 34% yet recovered its high in just 33 days, an unusually quick reversal.