In the wake of the stock market’s downturn to start this year, investors in the United States may be concerned about a potential stock market crash. The downturn was spurred largely by President Donald Trump embracing global tariffs, as well as a slowing economy.
Stocks keep rising and falling, and sizable declines are common. However, stock market crashes are different because of how steep the decline in prices becomes over a very short period of time. These crashes are also very difficult to predict ahead of time.
The US has witnessed many major stock market crashes, from Black Monday to the Great Depression. In general, a stock market crash happens when there is a decline of 20 percent or more in a few days, across a huge section of markets.
Here’s a look at five worst US stock market crashes
- 1929 stock market crash: The worst stock market crash in history, which started in 1929, was one of the catalysts of the Great Depression. A period known as the Roaring Twenties, during which the stock market boomed and the economy expanded, was suddenly ended by the crash. The main cause of the crash is believed to have been excessive leverage.
2. Black Monday: October 19, 1987: The 1987 stock market crash, or Black Monday, was the largest single-day percentage decline in the history of the US’ stock market. The Dow fell 22.6 percent on October 19, which was a horrifying drop of 508 points. Computerised trading programmes were largely blamed for the crash. However, the market was able to regain all of its losses from the crash less than two years later.
3. Dot-com bubble crash: 2000-2002: The values of internet-based stocks rose sharply during the late 1990s, and the technology-dominated NASDAQ Composite index (NASDAQINDEX:^IXIC) surged from 1,000 points in 1995 to over 5,000 in 2000. However, the dot-com stock bubble began to deflate in early 2001. On March 10, the Nasdaq peaked at 5,048.62 points, and the index eventually fell by 76.81% until it reached a low of 1,139.90 points on October 4, 2002. Overvalued internet stocks were blamed for the crash. The Nasdaq never rose to its 2001 peak again until almost 15 years later.
4. Financial crisis of 2008: The Federal National Mortgage Association (FNMA or Fannie Mae) wanted to make home loans more accessible in 1999, specifically to people with low credit ratings and less money to spend on down payments than lenders generally required. The subprime borrowers were offered mortgages with payment terms at the time including high interest rates and variable payment schedules. Previously ineligible borrowers and investors were impressed by the increased availability of mortgage debt, which in turn fuelled explosive growth in mortgage originations and home sales. Many consumers, at the same time, took on additional debt to buy other goods. Financial institutions started using cheap debt in order to boost the returns on their investments, and various companies looking to capitalise on the opportunities offered by the surging economy indebted themselves too. The stock market began to show signs of an upcoming collapse in March 2007 when the investment bank Bear Stearns was unable to cover its losses linked to subprime mortgages. The major stock indexes had lost nearly 20% of their value by September 2008. The Dow reached its lowest peak, 54% below its peak, on March 6, 2009. It took the Dow four years to recover from the crash completely.
5. Covid-19 crash of 2020: With the spread of the Covid-19 pandemic, the most recent stock market crash took place. The Dow Jones and S&P 500 plummeted 11% and 12%, respectively, during the week of February 24. It marked the biggest weekly declines to occur since the financial crisis of 2008. The Dow had declined by 9.99% on March 12 – its largest one-day drop since 1987. March 16 witnessed a deeper plunge of 12.9%. However, this time the stock market recovered quickly and reached its pre-pandemic peak by May 2020. The quick recovery was fuelled by a massive amount of stimulus money, with the Federal Reserve slashing interest rates and injecting $1.5 trillion into money markets. The Congress also passed a $2.2 trillion aid package at the end of March.
