It’s not a secret that investors are bound to act out of fear whenever there is a stock market crash. While many fear this event, crashes in stock markets are quite common at certain intervals. It’s possible for stocks to rise and fall at any time, but when a market crash occurs, there is a sudden drop in prices over a very short period.
Right now, in an attempt to combat inflation, the Federal Reserve increased interest rates, which made investors worry. This is because the economy may end up in a recession. Besides, investors worry about another stock market crash.
But what happened during previous US market crashes? Here are the biggest stock market crashes in the history of the United States and what you need to know about them.
2008-2009 Global Financial Crisis
The 2008-2009 global financial crisis is the one we’re most familiar with. Back in the fall of 2008, the financial system was close to collapsing due to the disaster in the housing market. Therefore, the government of the United States had to save all financial institutions and banks that could not take back their losses linked to subprime mortgages.
In 2007, it was already apparent that something like this was going to happen – there were several signs. Then, once the extent of the issue became more obvious in 2008, stocks fell, and in September of that same year, they reached a critical point.
The stock market then fell 777.68 points in intraday trading on September 29, making it the largest point drop ever. The market crash was caused by the initial refusal of Congress to pass a bill that would provide the American financial system with some stabilization, respectively, the bank bailout bill.
Moving forward, things only got worse, and the economy was falling. As such, it became obvious to investors that this was the greatest recession the US had dealt with since the Great Depression. It was only in 2013 that the previous high was surpassed.
Black Monday, 1987
This crash of the stock market happened on October 19, 1987, and it is popular due to being the largest single-day decline in percentage in the history of the US. The Dow dropped 22.6 percent on that day, which was a lot.
Apparently, the computerized trading programs at the time took the blame for the crash, even though there were worries over the increasing trade deficit of the US and tensions in the Middle East.
The prices grew and were able to sell more while falling as the algorithms bought more. In October 2019, the selling eventually resulted in more selling due to the panic of some traders. The market was unable to find a bottom.
Fortunately, it didn’t take long for the market to recover. For stocks, 1987 ended with a small gain, and all the losses from this crash were recovered by the market in less than 2 years.
2020 COVID-19 Pandemic
When COVID-19 took over the world in 2020, another market crash took place. This one was a bit unique. In March, investors realized how severe the pandemic is and how it can affect the economy of the whole world.
The Dow fell around 13 percent, or almost 3,000 points, on March 16, 2020. This was the largest decline in points, as well as the largest percentage drop in a single day since the crash of 1987.
1929 Wall Street Crash
The Wall Street Crash of 1929 was another very large stock market crash in the US. Before it happened, the price of shares grew to a level they’d never been before. Between August 1921 and September 1929, the Dow Jones Industrial Average grew six-fold, going from 64 to 381. The market already had a 21% decline at the end of the October 24, 1929, market day.
As a result, there was a lot of selling panic. Then, on October 28, the Dow declined around 13%. Once again, there was a drop in the market of around 12%, which happened on Black Tuesday. Then this particular crash lasted until 1932, which is how the Great Depression also appeared. It took until 1954 for the Dow to recover completely.
It is believed that two things caused the crash, respectively a large public unity holding company and investment trust expansion and an attempt by most of the Federal Reserve Board and some governors of various Federal Reserve Banks to combat market speculation.
Final Thoughts
If you are an investor, you don’t want stock market crashes to happen again. But looking back at history, you can see how long it took for the market to recover after some of the biggest market crashes in the US.
If you are a Forex investor, you should also try to diversify your funds and data in these uncertain times, and this can be done by picking international Forex brokers that accept US clients.
