A Comprehensive Guide to Stock Market Crash History

Stock market crashes have been a part of history for centuries, with the first recorded crash occurring in 1792. The Panic of 1792 was triggered by a bank run in Philadelphia, causing a ripple effect throughout the colonies.

The most significant crash in history was the Wall Street Crash of 1929, which led to the Great Depression. On Black Tuesday, October 29, 1929, stock prices plummeted, wiping out millions of dollars in investments.

The crash of 1987 was a one-day event, with the Dow Jones Industrial Average plummeting 508 points, or 22.6%, in a single day. This crash was triggered by a computer glitch that caused a selling frenzy.

The aftermath of a stock market crash can be devastating, with widespread job losses and economic downturns.

The 2015 to 2016 stock market selloff was a series of global sell-offs that took place over a one-year time frame beginning in June 2015.

The Dow fell 530.94, about 3.1%, on Aug. 21, 2015.

This significant decline was triggered by a combination of factors including the end of quantitative easing in the U.S., a fall in petroleum prices, the Greek debt default, and the Brexit vote.

These tumultuous economic circumstances led to investors selling shares globally, causing market volatility to rise sharply.

The market volatility initially began in China, where investors were sold shares amid the economic turmoil.

The causes of stock market crashes are complex and multifaceted. Speculation and economic bubbles, for example, can drive stock prices far beyond their true value, creating a bubble that eventually bursts and causes prices to fall sharply, as seen in the dotcom bubble of 2000.

Panic selling can also occur when events increase uncertainty, such as wars, pandemics, or economic data showing a downturn. This can cause widespread fear among investors, leading to sharp market declines.

Global events, like the COVID-19 pandemic, can disrupt economies worldwide, leading to rapid market sell-offs and sudden shifts in investor sentiment and market behavior. The average recovery period for major U.S. market crashes is about two years, though some have taken longer.

Here are some examples of major U.S. market crashes and their recovery periods:

Speculation and economic bubbles can drive stock prices far beyond their true value, creating a bubble that eventually bursts, leading to sharp price falls. This happened during the dotcom bubble of 2000.

Panic selling is triggered by events that increase uncertainty, such as wars, pandemics, or economic data showing a downturn. This can cause widespread fear among investors, leading to sharp market declines.

Global events can disrupt economies worldwide, leading to rapid market sell-offs. The COVID-19 pandemic is a recent example of such an event.

These crises are devastating, and while the market generally recovers, that makes crashes seem like a natural part of the market rather than the result of structural problems.

In 1963, Mandelbrot proposed that stock price variations executed a Lévy flight, which is a random walk that's occasionally disrupted by large movements.

A Lévy flight is characterized by its unpredictability, with prices making sudden jumps in either direction.

Researchers analyzed a million records of the S&P 500 Index in 1995, calculating the returns over a five-year period.

Notable Crashes have left a lasting impact on the stock market. The Crisis of 1772, for example, was triggered by colonial planters borrowing cheap capital from British creditors, leading to a credit crisis and numerous bankruptcies in London.

The Panic of 1796 to 1797 was caused by a U.S. land speculation bubble bursting, resulting in the collapse of multiple prominent merchant firms and the imprisonment of many American debtors.

Other notable crashes include the Panic of 1873, which followed a stock market crash in Europe and led to the bankruptcy of Jay Cooke & Company, causing a bank run and the collapse of at least 100 banks.

Here's a list of some of the most significant crashes in U.S. history:

The 2008 Financial Crisis was particularly severe, with the stock market falling 777.68 points in intraday trading on September 29, 2008, and the Dow Jones closing at 6,926 on March 5, 2009, a drop of more than 50% from its pre-recession high.

The first U.S. stock market crash occurred in March 1792, when securities dropped about 25% in two weeks. This was largely due to the Bank of the U.S. over-expanding its credit, leading to a speculative rise in the securities market.

The Bank of the U.S. had provided many banks with the ability to offer discounts to those in need of credit in multiple cities. This move was made by Secretary of the Treasury Alexander Hamilton as part of his efforts to stabilize U.S. markets.

The first crash only lasted about a month, but it was followed by a series of panics throughout the 19th century. These panics were a common occurrence in the U.S. stock market during this time period.

Global Financial Crises have a way of shaking the very foundations of economies worldwide. The 2008 Global Financial Crisis, also known as the Great Recession, was triggered by a housing market bubble bursting in the United States.

The crisis led to a massive loss of wealth for millions of people, with some estimates suggesting that the global economy shrunk by over 2%. The crisis also saw a significant increase in unemployment, with some countries experiencing rates as high as 25%.

The 2008 crisis was not an isolated event, but rather part of a larger pattern of global financial crises. The 1987 Black Monday crash saw stock markets around the world plummet by as much as 20% in a single day.

In the aftermath of the 2008 crisis, policymakers and regulators implemented new rules and regulations to prevent similar crises from occurring in the future. These measures included stricter capital requirements for banks and the creation of new regulatory bodies.

The 1997 Asian Financial Crisis saw several countries in the region experience severe economic downturns, with some countries seeing their currencies devalue by as much as 50% against the US dollar.

The Challenger disaster was a pivotal moment in space exploration history. It occurred on January 28, 1986, just 73 seconds into the flight, resulting in the loss of all seven crew members.

The Space Shuttle Challenger broke apart due to a faulty O-ring in one of its solid rocket boosters. This was caused by the low temperatures on the day of the launch.

The accident was a wake-up call for NASA, leading to a 32-month hiatus in shuttle flights.

The 1929 Crash was a pivotal moment in financial history. It happened on Black Tuesday, October 29, 1929.

The stock market had been rising steadily throughout the 1920s, reaching an all-time high in September 1929. This was more than six times its level in August 1921.

The economist Irving Fisher famously declared that stocks had reached a "permanently high plateau." The market didn't take long to correct him.

The crash began on Thursday, October 24, but really picked up steam the following Monday and Tuesday, when the Dow fell by 13 and 12 percent, respectively. By mid-November, the Dow was nearly half the level of its September high.

The market continued to fall over the next few years, crushing the fortunes of investors and speculators alike. It finally bottomed in July 1932 with the Dow closing at 41.22.

The 1929 crash came following a period of economic strength and technological progress. Cars and telephones were new inventions that gained widespread popularity.

Many people invested in the stock market using margin accounts that allowed them to borrow the vast majority of their investment. This helped fuel speculation in stocks and inflated their prices to unsustainable levels.

The 1987 crash, also known as Black Monday, was a significant event in Wall Street history.

On October 19, 1987, the Dow plummeted 22.6%, wiping out over $500 billion in market value. This was the worst trading day ever.

The crash began in Asian markets and rolled westward, revealing the interconnectedness of modern markets. By the time New York opened, selling was already intense.

Several factors contributed to the market's volatility, including rising interest rates, a weakening dollar, growing trade deficits, and the introduction of computerized "program trading" and "portfolio insurance" strategies.

These innovations, designed to protect against losses, instead amplified market risks and accelerated the decline.

The crash spurred several crucial market reforms that remain in place today, including circuit breakers to pause trading during severe market declines, improved coordination between stock and futures markets, and better communication systems between global exchanges.

Here are some key statistics from the 1987 crash:

The market recovered fairly quickly after the sell-off, with stocks closing out 1987 with a small gain for the year.

The dotcom bubble crash was a wild ride, and it's a great example of how market selloffs can be unpredictable. The Nasdaq Composite Index fell nearly 80% of its value between its peak in March 2000 and its bottom in October 2002.

The crash was triggered by investors selling off overvalued tech stocks, which had been fueled by speculation and optimism about the future of ecommerce. Some of the most high-profile casualties of the crash included companies like Pets.com and Webvan, which folded after burning through their cash reserves.

The Nasdaq 100 Index lost more than half of its peak value, taking a long time to recover. It wouldn't notch a new high until 2017, a full 17 years after the crash began.

Companies that had nothing to do with technology or the internet saw their shares rise during the crash, as investors sought safer havens. Shares of Warren Buffett's Berkshire Hathaway jumped more than 25% in 2000, while insurer Progressive's shares rose more than 40% in 2000 and 2001.

The market downturn erased about $5 trillion in market value, mostly from technology companies, leading to a collapse in investor confidence. The crash also hit the broader economy, contributing to a mild recession in 2001, exacerbated by the Sept. 11 terrorist attacks.

The 2008 Financial Crisis was a systemic collapse that brought the global financial system to the brink of disaster. It was the worst economic disaster since the Great Depression.

The crisis began with problems in subprime mortgages, which escalated into a massive market crash. On Sept. 29, 2008, the stock market fell 777.68 points in intraday trading, the most significant point drop in history.

The government's refusal to pass a bank bailout bill on Sept. 29, 2008, was the immediate cause of the market crash. The bill finally passed on Oct. 3, 2008.

Here are the key events leading up to the crisis:

The market continued to plummet, with the Dow Jones closing at 6,926 on March 5, 2009, a drop of more than 50% from its pre-recession high.

The crisis led to the creation of the Consumer Financial Protection Bureau and higher capital requirements for banks, among other reforms.

The 2020 COVID-19 pandemic was a global health crisis that had a significant impact on the stock market, leading to one of the fastest bear markets in history.

In just 33 days, the S&P 500 plummeted 34%, making it the fastest bear market in history. The speed of this decline was unprecedented, and it demonstrated how quickly modern markets can unravel when faced with a global crisis.

The stock market dropped sharply in February and March 2020, with the FTSE 100 falling 13% and the DJIA and S&P 500 Index dropping 11-12%. The largest daily decline occurred on March 12, 2020, with the DJIA declining 9.99%.

On March 16, 2020, the DJIA dropped 12.93%, or 2,997 points, the largest point drop since Black Monday (1987). The S&P 500 Index dropped 11.98% on the same day.

Despite the sharp decline, the market began to recover by the end of May 2020, with the stock market indices briefly returning to their levels at the end of February 2020.

The stock market crash of 1929 was one of the most devastating events in history, but it also led to some significant reforms. The Glass-Steagall Act was passed in 1933, separating commercial and investment banking.

In the aftermath of the 1987 crash, the stock market took a long time to recover, but it eventually did. In fact, it took about 2 years for the market to regain its pre-crash levels.

The 2008 crash led to a massive bailout package, with the US government spending over $700 billion to stabilize the financial system.

The Aftermath of '29 was a devastating time for America. Millions of people lost their savings in Morgan-owned banks.

The crash lasted until 1932, resulting in the Great Depression, a time in which stocks lost nearly 90% of their value. The Dow didn't recover its pre-crash value until November 1954.

Millions of people were left without work, and unemployment was at 30% by 1933. In fact, the Dow lost almost 90% of its value from the 1929 high that year.

J.P. Morgan's tone-deaf appearance at the U.S. Congress helped fuel public support for sweeping financial reforms. He defended his massive wealth and claimed America needed a "leisure class" that employed millions of servants.

Herbert Hoover, who was initially sympathetic to Wall Street, later shared the average American's view of Wall Street as a "giant casino rigged by professionals."

A recession is defined as a period of significant economic decline, typically lasting more than six months.

Businesses often struggle to stay afloat during recessions, with up to 70% of them failing within two years.

In the aftermath of a recession, it's essential to focus on recovery and growth.

The average time it takes for an economy to recover from a recession is around 7-10 years.

Rebuilding and investing in infrastructure can help stimulate economic growth and create jobs.

Investing in education and training programs can also help workers adapt to new industries and technologies.

Small businesses are often the backbone of a recovering economy, with up to 50% of them creating new jobs.

Government support and policies can play a crucial role in facilitating recovery, such as tax incentives and subsidies.

A well-planned recovery strategy can help businesses and individuals navigate the challenges of a recession and come out stronger on the other side.

Diversifying your portfolio across multiple sectors, such as stocks, bonds, cash, and real estate, is crucial to minimize the impact of a stock market crash.

Having the right mindset is essential for long-term investors. If you're saving for retirement, you don't need to worry about predicting every downturn, but rather understand that they will occur occasionally and are a normal part of investing.

Regular contributions to a workplace retirement plan, such as a 401(k), can help you take advantage of lower prices during market downturns through dollar-cost averaging.

To protect yourself during a market downturn, consider holding a portion of your portfolio in cash. This will give you the opportunity to reinvest the cash at more attractive rates of return when prices fall.

Investing with borrowed money can be a recipe for disaster during a downturn, as it can turn a regular downturn into a life-altering event.

Having the right mindset is crucial when it comes to investing for retirement. You don't need to predict every downturn that comes, just understand that they will occur occasionally and that it's a normal part of investing.

Making regular contributions to your retirement plan, such as a 401(k), can help you take advantage of lower prices during market downturns. This approach, known as dollar-cost averaging, means you'll buy more shares when prices are lower and fewer shares when prices are higher.

If you're worried about market downturns, consider holding a portion of your retirement portfolio in cash. Cash will protect you as prices fall and give you the opportunity to reinvest at more attractive rates of return.

Investing with borrowed money is a recipe for disaster, especially during a downturn. It's better to avoid margin accounts altogether and stick with what you can afford to lose.

Here are some key takeaways to keep in mind:

Having a solid trading strategy in place can help you navigate market crashes with greater ease.

The key is to diversify your portfolio and reduce risk exposure.

In a 2008 study, researchers found that investors who held a diversified portfolio of stocks, bonds, and other assets were less likely to panic and sell during a market downturn.

It's essential to set clear goals and risk tolerance before entering the market.

For example, a risk-averse investor may aim to limit losses to 10% of their portfolio, while a more aggressive investor may be willing to take on higher risks.

Having a stop-loss order in place can help limit potential losses.

In a 2010 study, researchers found that investors who used stop-loss orders were less likely to experience significant losses during a market crash.

The largest single-day percentage declines for the S&P 500 and Dow Jones Industrial Average both occurred on Oct. 19, 1987, with the S&P 500 falling by 20.5 percent and the Dow falling by 22.6 percent.

Central banks and government policies, such as bailout packages or interest rate cuts, have helped stabilize markets and restore investor confidence during turbulent times. However, even with these protections, the market isn't immune to crises.

The six largest single-day point declines for the Dow all occurred in the first six months of 2020 as investors grappled with the impact of the COVID-19 pandemic.

The stock market has experienced its fair share of crashes throughout history. The largest single-day percentage declines for the S&P 500 and Dow Jones Industrial Average both occurred on Oct. 19, 1987 with the S&P 500 falling by 20.5 percent and the Dow falling by 22.6 percent.

One of the most significant crashes occurred in 1929, where the Dow reached an all-time high in September before plummeting. The market fell 89 percent from its peak in September 1929, bottoming in the summer of 1932 at 41.22, the lowest closing level of the 20th century.

The Dow has seen significant point declines in recent years, particularly in 2020. The largest single-day point decline for the Dow occurred on March 16, 2020 when the index fell 2,997 points, or 12.9 percent.

The COVID-19 pandemic had a profound impact on the market, with the six largest single-day point declines for the Dow all occurring in the first six months of 2020. Here are the largest single-day point declines for the Dow:

The largest single-day percentage decline for the S&P 500 also occurred on March 16, 2020, falling 324.9 points, or about 12 percent.

Random Walk Theory is a conventional assumption that stock markets behave according to a log-normal distribution, implying constant expected volatility. However, mathematician Benoit Mandelbrot suggested in 1963 that this assumption is incorrect.

Mandelbrot observed that large price movements, or crashes, are more common than predicted by a log-normal distribution. This challenges the idea of constant volatility.

The nature of market moves is better explained using non-linear analysis and concepts of chaos theory. George Soros discussed this in non-mathematical terms as the reflexivity of markets and their non-linear movement.

Soros' experience in 1987 shows the impact of non-linear market movements, where a reversal, or "crack", can start an avalanche.

Self-organized criticality is a phenomenon where complex systems, like the stock market, naturally tend towards a critical state where small changes can lead to sudden and drastic outcomes. Research at the Massachusetts Institute of Technology suggests that the frequency of stock market crashes follows an inverse cubic power law.

This concept is supported by studies like Didier Sornette's work, which indicates that stock market crashes are a sign of self-organized criticality in financial markets.