Stock market crashes are short bursts of market downturns that could last between one day and a couple of days. Generally stock market crashes happen when a high-profile index, such as S&P 500 or the Dow Jones Industrial Index drops, making investors turn from buyers into sellers instantly.
Experts consider a market crash any single day where the stocks fall by 10 percent or more. Historically, this happens on a relatively frequent basis.
The coronavirus and the fear for it to become a pandemic is currently crushing stocks. For instance, the Dow Jones index fell 1,000 points, making it the worst week for stocks since the financial crisis of 2008. It has stimulated a lot of people to wonder whether this could become a full-on stock market crash.
The United State of America experienced four major market crashes in its history, where the stock market lost over 10 percent of its value.
Coronavirus has started appearing in the headlines of most leading news sources at the end of 2019. The main reason for such hype was its unexpected speed of transmission.
It was first found in Wuhan, China at the end of December 2019 and it has already traveled to the United States, Italy and Philippines. COVID-19 is the official name for coronavirus.
According to a recent research, thousands of people have been infected by COVID-19 and more than 3,000 people have already died from it. The most common symptoms of this virus are cough that continues for several days, which leads to back pain, short of breath and fever that increases steadily.
There has been no shortage of major U.S. stock market crashes. All of them were followed by recoveries. However, it should be also mentioned that some took much longer to recover than others.
The following section of this article focuses on describing the major stock market crashes in the history of the United States.
1. 1929’s Stock Market Crash
The first recorded stock market crash in history of the United States was in October 1929. During that period a decade-long “roaring 20s” economy ran out of steam.
Commodities like cars and homes were selling like hotcakes and speculators run wild in the stock markets. As a result, a lot of investors became over-leveraged meaning that they borrowed too much money to purchase stocks.
Then, when the market bubble popped, these investors were not able to meet their debt obligations leading them to bankruptcy.
A perfect formula for market busts is the toxic brew of inflated prices, extremely high leverage and borrowed money to purchase stocks.
During the 1929’s stock market crash, the stock market fell by 12.82 percent on the fourth day of the crash. This day was named “Black Monday”. 12 years were needed for the economy of the United States to recover from the Great Depression that spread after the market crash.
2. 1987’s Stock Market Crash
It is known as “Black Monday the 2nd”. This stock market crash took place again in October and it is known as the largest single-day market loss in U.S. history. 1987’s crash had its fair share highly-leveraged borrowers and speculators.
However, it should be also mentioned that it added a new twist to the bubble-popping mix, which is a technology.On October 19th, 1987 the market turned on a dime and sellers started to dominate market trading.
The more investors were selling, the more other investors were panicking and selling even more aggressively. This cycle continued for the whole day, as computer trading made it faster and easier to place sale orders.
After the first wave of panic, when the smoke cleared, the stock market experienced a loss of 23 percent.
As a result, the market giants started to take the first steps to install circuit breakers into computer trading platforms that could allow market executives to pull the plug on trading that would also give reeling stock markets a needed breather in potential high-risk market trading days.
Once the technology market stabilized, a lot of long-term success companies emerged, leading stock market growth.
3. 1999-2000s Stock Market Crash
There were stock market crashes that occured with the speed of light like the one in 1987, where the market encountered a loss of 23 percent in a single day of trading.
However, other crashes take longer when losses accumulate after repeated trading sessions. This was the case in the dot.com market crash of 1999-2000.
During this period of time, technology was in the center of actions as investors interest in internet stocks boomed over the period of the 1990s and as “new economy” companies saw their share prices rise dramatically.
Glove.com was considered an initial public offering (IPO) sensation. It opened at $87 per share in the first trading day in 1998 while the original asking price was only $9 per share.
As a result of IPO, Globe.com raised $28 million and had a market capitalization of $842 million. Two years later after the initial public offering, Globe.com was trading under $1 per shares and was later delisted by Nasdaq. The main reason for that huge drop was the fact that this company fell out of favor as investors fled highly-inflated stocks.
Since that time, investors started accurately evaluating the real financial stability of high-tech companies and they became more conservative about the stock and funds they purchased.
4. 2008s Stock Market Crash (The Great Recession)
The vast majority of Americans do not even understand how close the financial sector was to collapsing during the stock market crash of 2008 and 2009.
During that period of time, Wall Street banks’ high-risk trading practices almost took down the economy of the United States. The cause of the stock market was the widespread use of mortgage-backed securities, backed by the U.S. housing sector.
Products that were sold by financial institutions to investors, banks and pension funds dropped in value as housing prices receded.
Fewer and fewer Americans were able to meet their mortgage loan obligations, MBS values plummeted, sending financial institutions into bankruptcy.
Additionally, investors were not willing to offer needed liquidity in the nation’s financial markets. As a result of all the aforementioned events, the U.S. Congress established a massive government funding project that was aimed to stabilize the market.
Furthemore, the Federal Reserve steered interest rates toward zero percent. The strategy actually worked out as the stock market began climbing again in late 2009 as the economy began to recover.
It is still not clear enough how the stock market is going to react to coronavirus. However, experts say that the spread of coronavirus can lead to a stock market taking a huge hit in the long-run. Although, experts already know how people should react to this virus.
Every person should practice proper hygiene in terms of washing hands with warm water and soap for at least 20 seconds, disinfect objects like cell phone, keyboard, etc., and avoid contact with people who cough.
In case if you experience a fever or cough that continues for several days leading to back pain you immediately contact a primary care physician. He/she will determine whether a laboratory evaluation is needed.