What Are the Worst Stock Market Crashes in History?

With the markets feeling so gloomy and bearish as of late, I thought it would be a good time to look at the worst stock market crashes in history. After all, we all need to know that one day, this too shall pass. There is another side to market crashes and corrections, no matter how much despair there is from investors. Just keep in mind that the S&P 500 has gained on average about 10% since its inception in 1957. This includes several notable market crashes and bubbles.

What Is a Market Crash?

Worst Stock Market Crashes in History
Photo by Maxim Hopman on Unsplash

Wait, so am I calling this current downturn a market crash? Not really.

In fact, the stock markets see a correction of at least 10% every two years on average.

For those of us who have been through several of these, we know that the markets come out stronger on the other side! 

So what is a market crash? Compared to a correction, a market crash is swift, sudden, and unexpected. Many of the infamous market crashes happened in a single session.

So far this year the NASDAQ is down about 25%. Think about how painful it has been to investors and then think about a 25% drop in a single day. That’s the difference between a market crash and a market correction. 

What Causes a Market Crash?

As with any event on the stock market, there can be a number of different reasons as to why a crash happens. Each specific market crash throughout history has happened in a different market environment.

Macroeconomic factors, sector bubbles, and unexpected black swan events can all lead to a market crash. All you need to know is that there is nothing that you can do to prevent a market crash. Everyone is in the same boat!

Can Crashes Be Avoided?

Not really, no. But after previous market crashes there have been some failsafe’s put into place to avoid a total market meltdown. We saw some of these during the meme stock short squeeze in 2021.

While that wasn’t a market crash by any means, the trading volatility caused the New York Stock Exchange to halt trading for some stocks. In the case of a market crash, the entire market would be halted. Here are some of the things set in place to prevent a debilitating market crash!

Circuit Breaker Triggers

Worst Stock Market Crashes in History
Photo by Jamie Street on Unsplash

These are just a series of thresholds that would halt trading if they were breached.

These include if the S&P 500 index drops suddenly by a certain percentage. 

The three levels that it can be halted are if the S&P 500 drops by 7%, 13%, and  20%.

Imagine if the S&P 500 fell 20% in one day? Another trigger is a market decline right after the opening bell or right before the closing bell.

The exact times are after 9:30 AM EST or before 3:25 PM EST. Finally, and thank goodness for this, if the market ever falls by 20% in a single session, trading is halted market-wide.  

Worst Stock Market Crashes in History and Dark Pools

Many investors don’t think of dark pool trading as a way to hedge against a market crash. These pools of trading were created in the 1980s by the SEC. If you don’t know what dark pools are, they are separate trading markets for institutional traders who trade large blocks of shares.

While dark pools have received some criticism from retail traders as of late, they do serve a purpose. The blocks that are traded are so big they could potentially cause major damage to a stock.

If too many of these happen at once, it could trigger a cascading effect across the market. You never know if it would be enough to cause a market crash one day. Luckily, we have dark pools to avoid this problem.

Worst Stock Market Crashes in History

I’m going to focus on US market crashes here since it is much more relevant and close to home. A reminder that markets all over the world have crashes as well, not just US markets. But for this article, I’m just going to talk about the most infamous US stock market crashes in history.

Black Monday Stock Crash of 1929

Worst Stock Market Crashes in History

Of course, this is before either the S&P 500 or NASDAQ existed.

The Dow Jones Industrial Average was being used though and the blue-chip index fell by nearly 90% over the course of three years between 1929 and 1932.

Yes, I know I said that market crashes usually happen in a day or two, so let me explain.

The major crash occurred in October of 1929, when the US stock market fell by 13% and 12% on consecutive days. These are now known as Black Monday and Black Tuesday

The bearishness continued until the summer of 1932 where the Dow bottomed out at 90% below its peak. Following this crash, the Dow did not reclaim its price level from 1929 until 1954. 

This market crash was the leading catalyst of the Great Depression. The major cause? Over leveraged traders who created a debt bubble. Think of it as one gigantic margin call that crashed the market and devastated an economy.  

Worst Stock Market Crashes in History: Black Monday Stock Crash of 1987

After 1954, things began to trend back up and a new bull market was born. This is why they refer to the stock market as a cyclical machine. Once bearishness has subsided, bullishness takes back over and vice versa. Well, the stock market was great again, until another Black Monday hit, this time in 1987. 

On Monday, October 19th, 1987 the Dow Jones dropped by 22% in a single session. It remains the single largest stock market decline in US history. Luckily for investors, this was more of a flash crash and the market was able to recover by September of 1989.

What caused this Black Monday? Errors in early computerized trading are the main suspect. As well, there were rising geopolitical tensions in the Middle East as well as a growing US trade deficit. 

The Dot-Com Bubble: 1999-2000


Now we’re talking. This is the crash that most people are comparing 2022’s correction to, although I don’t agree with that comparison.

The Dot-Com bubble is one of the worst market crashes in history. In five years between 1995 and 2000, the NASDAQ grew from 1,000 to 5,000 basis points.

From March of 2001 to October of 2002, the NASDAQ fell by 76.8%! 

The NASDAQ bottomed at 1,139 basis points, erasing nearly five years of gains. The reason? Overpriced and overvalued internet stocks. Anything with a dot-com on the end of the company was rising like crazy.

The NASDAQ index did not regain its previous highs for 15 years. You can see why investors are so concerned about this recent NASDAQ correction. 

The Global Financial Crisis in 2008

It’s still too soon, the wounds haven’t healed yet! For those of us who lived through the global financial crisis in 2008, this current situation is all too familiar. Of course, this crash was also brought on by a lot of leveraged borrowing, particularly with subprime mortgages.

In an attempt to make homes more accessible to people with lower credit, Fannie Mae lowered the qualifications for mortgage applications. Well, the rest is history. We all know what happened next.

From 2007 to 2008, the major averages had lost over 20% of their value. The Dow Jones hit its lowest price in 2009 when it was 54% below its previous highs. 

It took until 2013 for the Dow to recover. This crash is infamous for the collapse of Bear Stearns and Lehman Brothers. It is also the inspiration for the movie, the Big Short. The award-winning film is about Michael Burry shorting the US housing market. 

The Novel Coronavirus Crash in 2020

This brings us to the present day where the onset of the COVID-19 pandemic in the US triggers markets to tumble. In the week of February 24th, 2021 both the S&P 500 and the Dow Jones dropped by more than 11% respectively.

On March 12th, the Dow fell by 10% in a single session and then on March 16th, it beat that mark after falling by 12.9%. The craziest thing about the 2020 COVID-19 crash was that the markets recovered by May of the same year.

In fact, injection of stimulus and the lowering of interest rates led to one of the strongest bull markets in history. This correction in 2022? This is the fallout from that bull market. 

Conclusion: Worst Stock Market Crashes In History

So as you can see, market crashes happen pretty infrequently. Market corrections happen much more often and that is what we are dealing with in 2022. The key takeaway from every crash and correction is that the market eventually recovers. 

Of course, nobody wants to wait several years or even decades for the markets to return to normal. When will this correction in 2022 come to an end? Nobody can predict that. The one thing we do know is that it will end one day, and when it does, the bulls will be back in control!

Leave a Reply

Your email address will not be published.