American financial markets have always experienced cycles of expansion and contraction. Since the advent of modern stock exchanges, daily stock averages have been used as an indicator of economic activity. At several points during the past century stock markets have crashed, experiencing a steep decline in value in a short period of time. The following are six of the most remarkable Wall Street crashes in history.
While everyone knows about the 1929 market crash and remembers where they were on September 11, the post-World War I market crash has largely faded from memory. The crash, which started in late 1919, resulted in a 46 percent drop in the stock market and is thought to have been provoked by intentional financial manipulation. Fortunately, the effects of the crash were short in duration and the United States proceeded directly into the Roaring Twenties.
Almost every American is familiar with the Crash of 1929, the massive financial collapse that led to the Great Depression. Just weeks after Secretary of the Treasury Andrew Mellon assured the public that "There is no cause to worry. The high tide of prosperity will continue," the stock market began a precipitous decline on October 24, 1929, eventually losing over 80 percent of its total value. Many Americans lost all their financial assets in the crash which devastated stockholders and non-stockholders alike and led to the failure over 10,000 banks. The crash was so severe that the American stock market did not return to pre-crash levels until 1955.
A perfect storm of geo-political and economic events conspired to cause a major Wall Street slide in 1973 and 1974. The factors contributing to the collapse resembled those that led to the 2008 crash, including a slowing housing market, rising unemployment and inflation, with the addition of exponentially rising fuel prices and a major Presidential scandal. Economic conditions remained bleak throughout the 1970s, with the economy finally recovering in the early 1980s.
Like many Wall Street crashes, the crash that occurred in October 1987 happened seemingly unexpectedly at the end of a prolonged bull market. Computer stock trading was in its infancy at the time and is thought to have contributed to the collapse because of the implementation of pre-set ordering and selling by large companies. Although the crash was severe, with a 22 percent drop in a single day, it did not lead to a deep recession and the markets recovered relatively quickly.
The stock market was hit by back-to-back disasters in 2000, with the bursting of the "dot-com tech bubble", and 2001, with the terrorist attacks on New York City and Washington. The tech bubble was caused by a rush by investors into tech stocks, including many who borrowed money to get into the market. Day traders hoping to make a quick profit also jumped in. Like all bubbles, the tech bubble burst unexpectedly in March 2000, leaving many small investors broke when the NASDAQ dropped over 75 percent. The financial markets had not fully recovered when the terrorist attacks of September 11, 2001, caused another short-lived crash. The Dow Jones Industrial Average dropped nearly 700 points in a single day but the markets recovered to pre-crash levels in less than a month.
The year 2008 was much like 1929, with assurances of continued prosperity. The first signs of trouble were a falling housing market and rising unemployment that began in 2007. A vote to prop up several large financial institutions damaged by the housing slump stalled in Congress, an event which is considered to be the main cause of a 777 point drop in the Dow Jones Industrial Average on September 29, 2008. An extended period of market volatility and uncertainty followed as the housing and financial bubbles slowly deflated.
While large business feel the immediate impact of a Wall Street crash, the effects are felt throughout the entire economy. The worst is that the cycle doesn’t seem to be predictable or preventable.
William Grey is a business owner who enjoys sharing with his readers business advice and interesting tidbits from the business world. William highly recommends checking out the top online MBA programs for anyone interested in starting a career in a big business.