Biggest Stock Market Crashes

Biggest Stock Market Crashes in History

What were the biggest stock market crashes in history? Strolling down memory lane reveals that the stock market doesn’t always rise. Sometimes, it drops down, and other times, it comes crashing down like the waves of a tsunami. This post will ride the tsunami wave of some of the biggest stock market crashes ever. We’ll look at the metric we use to measure stock market performance. And how it helps us gauge a crash versus a consolidation. 

Biggest Stock Market Crashes in History

If you’re looking at the biggest stock market crashes on percentages alone, then the crash of 1929 was the largest. It crashed at 33.6%. That’s huge. The second largest percentage crash was black Monday in 1987. It crashed -31.3% in one day. One day. Can you imagine that? That was before trading computers used by retail traders were a thing.

You had to look up the prices of stocks in the newspaper and then call your broker. You couldn’t buy and sell at the click of a button. Instead, floor trading was the norm. I would not want to be a floor trader on a day when the market crashed over 30%.

There was a time when the gold standard was how America’s currency was backed. Those were probably the days of the “Witch of Wall Street“. Instead of just printing money willy-nilly like we do today, our currency had to be backed by something, i.e., gold.

So when they decided to do away with that, the market crashed a whopping -26.7%. If we’d stayed with a gold-backed currency, we’d be in a much better off position debt and inflation-wise than we are today because we’d have to have tangible currency to back our money. Paper is not it.

Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is the most important stock index to gauge market performance. More importantly, it measures the stock performance of 30 large companies listed on stock exchanges in the United States. The fact it represents and reflects the market movements of such giants as Microsoft, Boeing, IBM, and Coca-Cola lends credence to its importance. And it’s how we can tell when the biggest stock market crashes occur.

DJI Stock Market Crash

DOW Losses on Black Mondays

  • December 12, 1914: -25%
  • October 28, 1929: -12.8%
  • October 19, 1987: -22.6%
  • March 16, 2020: -12.93% 

Black Monday: October 19, 1987

“Black Monday” refers to the catastrophic stock market crash on Monday, October 19, 1987. During this time, prices sunk 22.6% in one day. The crash occurred worldwide, starting in Hong Kong and spreading throughout Asia and Europe before reaching the United States. Because of the time zone difference in Australia and New Zealand, the day is called Black Tuesday.

When measured in United States dollars, eight markets declined by 20 to 29%, three by 30 to 39%, and three by more than 40%.

Nothing since Black Monday in 1914 has come close. Not the selloff after the September 11 terror attacks or the 2008 financial crisis. On that day in 1987, as the cameras rolled on the frantic floor of the New York Stock Exchange, prices on the ticker tumbled, the panic spread, and the crash worsened. By the closing bell, the Dow stood at 1,738.74, down 508 points. To put this in perspective, a crash like that today would equal more than 5,000 points on the Dow.

Many wonder what caused this panic selloff. It was a combination of heightened hostilities in the Persian Gulf, fear of higher interest rates, a five-year bull market without a significant correction, and computerized trading that accelerated the selling and fed the frenzy among the human traders.

For those with front-row seats, it was panic. Traders placed wanton trades on emotion, throwing all logic out the window. Emotional trading is no longer calm and orderly, and that’s when Black Mondays are born. I panic separates a crash from just a bad day on Wall Street. Black Mondays are born when emotion takes over, and trading is no longer calm or orderly.

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Could It Happen Again?

Could it happen again? A panic is always theoretically possible. But a 22% Dow drop? It’s less likely, at least not in one day. A financial contagion is always possible.

After the Black Monday free fall, the New York Stock Exchange installed what is known as circuit breakers, designed to stop trading when stocks dive too far too fast. It’s a forced timeout to allow investors to calm down and interrupt a panic.

Today, if stocks dived even 7%, trading would be suspended for 15 minutes. A decline of 20% would shut down trading for the rest of the day.

Biggest Stock Market Crashes in the World

All of the biggest stock market crashes in the world are mentioned in this post. The financial crisis of 1914, Black Mondays, and the Coronavirus crash of 2020. They’re all days and weeks that have affected us.

But if you know how to trade any market, then crashes are much less scary because you can make money in any market.

Whether you’re trading stocks vs options, you can short or buy puts. Now, your 401K might be hurting. But if you’re using a hedge fund or money manager, they should have safe havens built into your portfolio for times like these. What goes down must come back up. So your 401K’s usually recover. However, if you retire when that happens, you’re hurting more than a younger individual.

October 28, 1929

The Black Tuesday stock market crash in 1929 remains one of the worst crashes in U.S. history. Over four days, the Dow Jones dropped 25% and lost $30 billion in market value – the equivalent of $396 billion today. This crash kicked off the Great Depression in the United States. 

The Great Financial Crisis Of 1914

We all know that war is expensive; the U.S. federal price tag for the post-9/11 wars is over $6.4 trillion. With the outbreak of World War I in Europe, many foreign investors began selling off their holdings to raise money for the war effort. As you may or may not know, this triggered the Great Financial Crises of 1914.

This devastated the U.S. economy and forced the NYSE to shut its doors on July 31, 1914. Sadly, by August 1, all the financial markets worldwide followed suit and closed their doors.

Trading of stocks didn’t resume until December 12, 1914. The DJIA fell 24.39% on the open market – its worst percentage drop since published in 1896. The New York Stock Exchange (NYSE) was closed for nearly four months for bond trading, the most prolonged stoppage in the exchange’s history. You can thank WWI for that. 

The NYSE did not close its doors for such an extended period until the terrorist attacks in New York and Washington on September 11, 2001, when trading was suspended for three days.

Final Thoughts: Biggest Stock Market Crashes

Unfortunately, the future does not look bright. We are now looking at double trouble: a stock market crash combined with an inverted yield curve. The latter is unhealthy when the return on a short-term Treasury bill surpasses that for the Treasury 10-year note. All of this shows that short-term risk is more significant than long-term risk. Investors tell the world that the adverse effects of coronavirus cause them to demand higher yield within a month than for the 10-year note. Overall, we have a harbinger of recession.

So, what does all of this mean for regular people like you and me worldwide? We’ve seen our portfolios diminish, but that does not mean you should sell. You may feel the urge to sell off your assets, but this would be a rash and emotionally motivated decision. In fact, many have seen their portfolio rebound. 

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