Your Complete Stock Market Crash History Guide

If you're worried that we may be headed for a crash, you aren't the only one. Markets are still trading near all-time highs, which has many analysts calling for a major pullback.

A look at our nation's stock market crash history paints a picture of a volatile market that doesn't react well to uncertainties. In this tumultuous election year, with economic uncertainty around the world, it's a possibility that we could be reviewing the stock market crash 2016 highlights in the near future.

stock market crash history

While the past can never predict the future, we can analyze the stock market history for any past trends we may be seeing today.

Here is a quick rundown of the stock market crash history and the reasons why many analysts are on edge now...

Stock Market Crash History - What Constitutes a Crash?

For the sake of clarity, let's define precisely what a crash entails before we launch into a stock market crash history. A crash is a significant drop in the total value of the market, and it is usually tied to the popping of a bubble.

A bubble occurs when there is inflated demand on stocks, driving up their prices much higher than the stocks are actually worth. Since they aren't backed by anything "real," they eventually pop, and the investors suffer.

When a crash happens, it isn't a subtle slide. The drop in the market is significant, and these crashes are often followed by either a depression or a recession. If the drop in the market is slight and there is a recovery, it isn't a "crash," but rather a "correction."

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As a general rule, corrections are characterized by a 10% or less drop in the market and a short duration. A market crash is when the market falls 30%, 40%, 50% or more in a matter of days or weeks. Here are just a few of the stock market crashes in history.

Stock Market Crash History - the 1929 Stock Market Crash

While there were a few interesting market crashes before this most famous one, the stock market crash of 1929 is the first major crash in the U.S. markets, and there are reasons that it's so memorable.

Remember what we said about bubbles? The roaring 20s were an age of prosperity in this country, propped up by a land boom and by speculation in railroads and manufacturing.

In just the four months before the crash, the Dow Jones gained more than 20% in value. Nearly everyone in the country was borrowing money to invest in the thriving market.

The markets began their fall in September 1929, and the real tumble took place in October. On "Black Thursday" (Oct. 18), the market lost 11% of its value. By the time the market bottomed out in 1932, it was down nearly 90%, and within the next year about half of all U.S. banks had failed. Unemployment reached 30%, and it took 25 years for the market to reach pre-crash levels.

Stock Market Crash History - the 1987 Stock Market Crash

Contrary to what some people believe, the crash of 1987 was no correction. In fact, the losses on "Black Monday" amount to the largest one-day market crash in history, as a percentage of market value. The preceding bull market began in 1982, fueled by hostile business takeovers, shady IPOs, mergers, and leveraged buyouts. By 1986, the Dow had nearly doubled.

Some investment advisors began using what was called "portfolio insurance" to protect investments, which actually made the problem worse. When the market began to tumble in October 1987, aggressive sell orders began hitting, inducing even more panic. By the end of the day, the Dow had lost 22.6% of its value, a $500 billion loss.

Fortunately, Alan Greenspan had just taken over the Fed, and some measures were put in place to both prevent a depression and try to mitigate potential future market crashes. The next one came just two decades later.

Stock Market Crash History - the 2008 Stock Market Crash

This devastating loss on Sept. 29 was the largest one-day point loss in market history, with a 777.68 point drop. The market dropped another 678 points on Oct. 9, and an additional 733 points on Oct. 15. By the spring of 2009, the market had plunged 54% from its high in the fall of 2007. What caused this bubble to burst? Again - speculation.

The speculation that obliterated the market in the stock market crash of 2008 and 2009 was that of the real estate and mortgage variety.

From the late 1990s through 2006, home prices in the United States nearly doubled. Lenders took to relaxing lending standards to accommodate the rush to buy a home and get in on making real estate investment riches.

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Buyers either took loans above their means or investors took multiple loans from unscrupulous lenders, causing defaults to skyrocket and a bubble burst of epic proportions.

Stock Market Crash History - the 2016 Stock Market Crash?

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Does this stock market crash history lesson give us clues about a potential crash in 2016? Some experts believe that it does. Currently the S&P 500 is trading at near record levels, and Money Morning Global Credit Strategist Michael Lewitt believes that the Fed's reluctance to raise interest rates for the sixth time this year is proof of the fact that they're putting our markets in danger.

Over a third of global government-issued bonds currently have negative yields. These aren't attractive buys for investors, who instead turn to the stock market, potentially driving up stock prices beyond their values.

Other factors that could contribute to a stock market crash this year include a still struggling economy in the United States. This is clear from our stifled GDP, which is down 74% over the past two years. Plus, companies in the S&P 500 have reported an average earnings loss for six consecutive quarters, as reported by FactSet.

While our economy continues to struggle, the possibility of another stock market crash still exists. There are always ways to make money through investing, regardless of market conditions. To learn more about a potential stock market crash and how to invest in a troubled market, read our stock market crash protection plan, right here...
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