Six stock market crashes in history

There have been a huge number of stock market crashes throughout history, purely because they are a natural part of the cycle. So, let’s take a look at some of the most recent and most famous examples. Interesting to note are the different lengths of time it took for the markets to recover after each crash. The range is huge from 15 years to one day.

No market crash is the same

1. Stock market crash 1929: The Great Depression

As the economy grew in the 20s, spurred on by post-war optimism and advancements in technology, the stock market expanded rapidly. The companies behind these inventions saw a huge influx of investments from both professionals and members of the public who had to borrow vast sums to finance their speculations.

The stock market reached its peak on September 3 1929, when the Dow was sitting at 381.17. The crash would begin the following month on October 24, a day that is now known as Black Thursday. The market opened 11% down, and despite institutions stepping in to boost the market price, the relief was short lived. The following Monday, the Dow closed 13% down and fell a further 12% the next day. From peak to trough – on July 9 1932 – the Dow fell by 89.2%.

The aftermath of the crash caused ‘The Great Depression’, a worldwide economic depression that saw consumer spending and investment drop off and caused huge declines in industrial output and employment rates. It took nearly three decades for the Dow to reach pre-crash levels.

2. Stock market crash 1987: Black Monday

In early October 1987, stock markets started to see small declines. Despite the mid-80s being a period of economic optimism, with indices globally having risen by nearly 300%, a culmination of factors resulted in the worst single day decline the world had ever seen at that point.

On Monday October 19 1987, a day now known as Black Monday, the crash started in Hong Kong, but quickly spread throughout Asia and Europe before hitting the US stock market. When the US market opened, stocks were already in freefall and by the end of the day, the Dow Jones had fallen by 22% - the worst single day decline in the Great Depression was 12%. The cause of the crash is thought to be computer program-driven trading models focused on portfolio insurance. The strategy was thought to hedge a portfolio of stocks against market risk by short-selling index futures. But, as the programs automatically triggered at certain levels, prices were just pushed lower and lower as more stop-loss orders were set off. The same programs also stopped any buy orders from going out, which meant that there was no balance. While these computer programs are thought to be the spark, it was panic selling from other investors that caused the worst of the decline. Other major indices had fallen by 20% by the end of the month.

The 1987 crash was the reason that trading curbs were introduced in most exchanges. The idea being that a period of shutdown would help stem the panic that sell-offs cause.

3. Stock market crash 2001: The Dot-Com Bubble

In the late 1990s, there was a huge rise in investment into technology companies fuelled by the growth of the internet. This bull market caused the Nasdaq composite to rise from 1,000 to more than 5,000 between 1995 and 2000. The companies’ shares were trading well above their true value, based purely on optimism that the companies would see huge amounts of success in the years to come. This period of speculation and over-inflated prices is now known as the ‘dot-com bubble.’

But what goes up – and is completely unfounded – must go down. The bubble burst in 2001 and caused a global bear market. The Nasdaq fell from its peak of 5,048.62 on March 10 2000 to a bottom of 1,139.90 on October 4 2002 – a decline of 78%.

Throughout this period, the majority of internet-based companies had gone bust. The few stocks that survived – the likes of Intel, Amazon, eBay and Cisco – still had huge chunks taken out of their market capitalisations. It took nearly 15 years for the Nasdaq to recover.

4. Stock market crash 2008: The Great Recession

In 2008, the Dow Jones fell by 777.68 points – the largest decline up until the Covid-19 crash in 2020. To understand the market crash, it’s important to take a look at the state of the US housing market in the years leading up to the decline.

In the early 2000s, banks were selling mortgages to individuals with very few checks – even people who had previously found finding a lender impossible due to poor credit history were able to buy houses for small initial payments. This caused rising demand for mortgage-backed securities – essentially, these mortgages were repackaged and sold to investors as new financial products. Some of these securities were thought of as low risk, because they were insured. Investors initially profited as housing prices soared, but most investors didn’t understand the risks they were taking on. In 2007, the housing market peaked and refinancing or selling homes became less viable. When homeowners defaulted on their loans, those invested in the market started to crash and burn. That year, New Century Financial Corp, a leading subprime mortgage lender, filed for bankruptcy, soon followed by a lot of other companies. The stock market crash started when the US Congress rejected a bailout bill.

In 2008, two government-sponsored enterprises, Fannie Mae and Freddie Mac, suffered large losses and were seized by the federal government. As foreclosures continued, the subprime mortgage market completely collapsed. This meant that other areas of the economy quickly fell like dominoes. Construction rates were plummeting, consumer spending and wealth fell, banks and other financial firms were unable to lend, and it became impossible raise funds from stock markets.

By March 5, 2009, the Dow Jones had dropped more than 50% to 6,594.44. While the 90% fall during the Great Depression happened over four years, the 2008 financial crisis took place over just 18 months. It took nearly six years for the market to recover.

5. Stock market crash 2010: The Flash Crash

The Flash Crash of 2010 is a markedly different type of financial crash than the others on our list because it lasted just 20 minutes. On May 6 2010, the day of a UK general election, mounting Greek debt and a volatile USD/JPY, the Dow Jones took a near 1,000-point nosedive. While speculation as to the cause of the crash was rampant, within just a couple of days, US officials had pointed the finger at a $4.1 billion sell order from a mutual fund called Waddell & Reed. The mutual fund in question was using an automated algorithm strategy to trade E-Mini S&P contracts, and once the order was in, it sparked a sell-off from other high frequency traders.

For the most part, the stock market had managed to rebound in the same day, but while it lasted the flash crash erased almost $1 trillion in market value.

6. Stock market crash 2020: The Coronavirus Crash

As the global pandemic began to spread throughout the first few months of 2020, government officials began sending citizens into what would be the first of many lockdowns. The shutdown in economic activity led to a stock market crash in March 2020, that would include the three of the worst daily percentage declines in history. On Monday March 9, the market fell by 7.79%, on March 12, the Dow fell by 9.99% and on March 16, the Dow fell by 12.9%. Each time, the drops were large enough that trading was suspended to try and stabilise the market. Between February 12 and March 23, the Dow lost 37% of its value. Economies across the world went into lockdown mode, costing millions of individuals their jobs, closing down businesses and leading to an international death toll that had reached 4.55 million as of October 2021.

The stock market recovery from the coronavirus crash happened much quicker than anyone had imagined, especially given that the state of the economy was still dire. But thanks to fiscal stimulation, rescue packages and slashed interest rates, investors tentatively waded back into the markets. Six months later, by August 2020, the S&P was hitting new record highs and by November, the Dow had returned to pre-pandemic levels and even passed the 30,000 mark for the first time.