When there is a sudden and significant decline in the stock prices and other financial assets on the level of an economy, it is often termed a ‘market crash’.
These crashes are usually triggered by a host of microeconomic and macroeconomic factors including but not limited to:
- Exaggerated expectations of future growth
- Shrinking economies
- Changing consumer behaviour
- Panic-inducing domestic or global events
- Lack of transparency
- Mass fear among investors
- Overvaluation
This blog covers some of the most notable U.S. market crashes in world history.
Notable U.S. Stock Market Crashes
The U.S., considered a global power as early as 1898, experienced multiple economic catastrophes. The Panic of 1792 is the earliest documented financial crisis in U.S. history.
Up Till 1900
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Market Crash
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Causes
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Outcomes
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Financial Crisis of 1791
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- Prominent bankers like William Duer and Alexander Macomb defaulted on loans
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- Management techniques invented by Alexander Hamilton at the time later became theoretical and practical standards of central bank behaviour in crises
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Panic of 1819
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- Dramatic decline in the price of cotton
- Mistaken land speculation
- Poor banking practices and foreign competition
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- Growth in trade that followed the War of 1812 was halted abruptly
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Panic of 1837
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- Collapsing land bubble
- Lack of a central bank to regulate fiscal matters
- Raising of interest rate by the Bank of England
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- Profits, prices, and wages dropped
- Resulted in a 6 years of depression
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Panic of 1857
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- Shrinking international markets
- over-expansion of the domestic economy
- Reported embezzlement and bad agricultural investments by Ohio Life Insurance and Trust Company
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- Northern economy took a significant hit and made a slow recovery
- Initiated a general inquiry between free traders and protectionists into the deficiencies of American economic practices (which may have also contributed to rising abolitionist sentiments in the North)
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Black Friday (1869)
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- Jay Gould and Jim Fisk schemed to inflate the price of gold
- In response, the sale of $4 million in government gold was ordered by President Grant
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- Collapse of the U.S. gold market in the month of September
- Many investors failed to pay back their debts
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Panic of 1893
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- Inaccurate speculations about international economies like that of Argentine, South African and Australian
- Oversupply of silver domestically
- Repealing of the Sherman Silver Purchase Act by the Congress
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- The U.S. stock market crashed
- Caused the most severe depression in U.S. history
- Enormous losses for President Grover Cleveland's party in the 1894 elections
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1900 and Later
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Market Crash
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Causes
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Outcomes
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Panic of 1901
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- Jacob Schiff, E. H. Harriman, and James J. Hill/J. P. Morgan wrestled for ownership of the Northern Pacific Railway
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- Was the first stock market crash on the New York Stock Exchange
- Closing of Northern Securities Company under the Sherman Antitrust Act of 1890
- Establishment of the National Monetary Commission to study banking and currency reform
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Panic of 1907
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- Set off by a series of bad banking decisions
- Caused by public distrust of the banking system
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- Creation of the Federal Reserve System by Jon R. Moen and Ellis W. Tallman
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Wall Street Crash of 1929
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- Post-war optimism
- Abuses by utility holding companies
- Overinflated shares
- The Dow Jones declined approximately 23.05% at the end of October of 1929
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- Cause of the worldwide Great Depression
- Saw the largest sell-off of shares in U.S. history
- Gross domestic product (GDP) fell 10%
- Clarence Hatry was convicted of fraud and forgery
- The Dow Jones crash didn't fully recover until November of 1954
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Black Monday (1987)
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- A standoff with Iran in the Middle East
- Computerised trading
- Caused by overvalued stocks
- Investor panic
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- Resulted in global consequences
- Intervention of the Federal Reserve (Fed) acted as the lender of last resort to manage the crisis
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The Bear Market of 2007-2009
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- Burst the mortgage bubble
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- Most severe bear markets in the history of the S&P 500
- Resulted in a global financial crisis.
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COVID-19 Pandemic Shutdown
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- Outbreak of COVID-19 virus
- Shutdown mandated by the government
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- Stock prices crashed in the first quarter of 2020
- Showed an upward trend by the end of the year.
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Conclusion
Is the stock market going to crash again? You can never know with certainty. However, if you observe and study these US market crashes, you will notice that they are most often a detrimental mix of a highly volatile stock market, exaggerated stock values, inaccurate speculations, fearful investors, laissez-faire government outlook and weak leadership. Keeping an eye for such indicators would help you with your investments.
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Frequently Asked Questions
1. What were the main factors contributing to notable U.S. market crashes?
Most market crashes in the US were a result of exaggerated expectations of future growth, shrinking economies, changing consumer behavioural patterns, panic-inducing domestic and global events, lack of transparency, and overvaluation.
2. How did historical U.S. market crashes affect the economy and investors?
They caused economic recessions across the globe. Many investors lost their savings. It adversely affected the standard of living and caused large-scale unemployment as well.
3. What role did government policies play in responding to major U.S. market crashes?
The government responded by cutting interest rates and enacting regulatory measures. It also founded the Securities and Exchange Commission (SEC) to work independently to safeguard the economy against market manipulation.
