Stock prices rise and fall all the time and trading activity is pegged on this volatility. However, a significant decline in the prices of stocks results in market crashes. A market crash usually happens when significant stocks lose over 10% of their value.
Unfortunately, stock market crashes are hard to predict and their impact on the economy varies. Most of the stock market crashes have been preceded by a long period of bullish prices during which traders invest heavily. A slight drop in prices in such times can trigger panic selling as investors struggle to offload their stocks to avoid losses.
There have been many market crashes in the history of the stock exchange but some stand out because of the severe effect they had on the industry and the economy at large. In this article, we will discuss the five most impactful stock market crashes.
The 1929 Stock Market Crash
Also known as the Black Monday, the 1929 Stock Market Crash is the most significant financial downturn to date. It was the precursor of the Great Depression of 1929 is by far the worst stock market crash that ever happened. This infamous crash was preceded by the Roaring Twenties, a period during which the stock market flourished and was marked by a steady bullish market. Prior to the crash, the Dow Jones Industrial Average experienced a six-fold increase between August 1921 and September 1929.
On Black Monday, the Dow fell by 13% while on Black Tuesday it went down by 12%. This bearish trend progressed steadily and by mid-November, the Dow had lost at least half its value. It was not until the Summer of 1932 that the Dow stabilized, by which time it was trading at 89% lower than its 1929 peak value. It took at least two decades before the Dow regained its pre-crash value.
The Black Monday of 1987
Monday, October 19th, 1987 is an unforgettable day in the stock market calendar. Infamously known as the Black Monday, the single biggest decline of a stock ever experienced in history happened on this day when the Dow Jones stocks fell by almost 22%.
The Black Monday crash is attributed to the introduction of computerized trading and tensions in the Middle East. The computer programs produced more buying options in bullish markets and selling options in bearish markets. This caused panic selling of stocks when the Dow Jones stock fell. Fortunately, the Dow Jones stock recovered quickly and by November 1987 it had picked up.
The Financial Recession of 2008
The financial crisis of 2008 is proof that even the most well-intended projects can bear disastrous results. The Federal Mortgage Association sought to promote homeownership amongst everyone, including people with bad credit. As a result, it introduced the subprime mortgage option that offered mortgage loans to borrowers who previously were ineligible because of their poor credit history.
The relaxed mortgage laws not only attracted mass borrowing from aspiring homeowners, but also triggered a cycle of debt amongst lending institutions seeking to meet the high customer demand. Additionally, new homeowners also sunk further into debt as they made more credit-fueled purchases. Companies too got sucked into the debt spiral as they borrowed to satisfy their customers’ needs. The easy access to credit coupled with rising interest rates was unsustainable, eventually leading to the market crash in 2008. All the major stock indexes fell by nearly 20% by September 2008. In 2009, the Dow Jones took the hardest hit during this crash, reaching an all-time low of 54% below its peak.
While many other stock market crashes have happened, these three remain the most significant. At AllStars Trader, we offer you exciting sports indices that are not dependent on external market factors but purely on the performance of the player during a set match. You can trade in our football and cricket CFDs based on your passion and knowledge of sports. Follow AllStars Trader Blog for these and more trading-related news.