Financial Turbulence: A History of The Top 7 Events That Shook The Stock Market
Introduction
Have you ever wondered what makes the stock market crash? The stock market is a complex and dynamic system influenced by various factors, including economic, political, and social events. Over the years, there have been several major events that have had a considerable impact on the stock market and the global economy.
Join us on a journey through history as we explore the top seven major events that have shaken the stock market, from the Great Depression to the coronavirus pandemic. Discover the causes and consequences of these events and how they have shaped the financial landscape.
Whether you’re a seasoned investor/trader or just starting out, this post will provide insight into the forces that drive the stock market and global economy. Take advantage of this opportunity to deepen your understanding of the events that have shaped the financial world.
Table of Contents
I. Introduction
II. The Great Depression (1929)
- Causes of the Great Depression
- Stock market crash of 1929
III. World War II (1939-1945)
- Impact on global trade and financial markets
- Influence on the stock market
IV. The oil crisis of the 1970s (1973-1974)
- Oil embargo by Arab oil-producing countries
- Impact on the stock market and global economy
V. Black Monday (1987)
- Causes of the crash
- Impact on the stock market
VI. The dot-com bubble (1997-2000)
- Factors contributing to the bubble
- Burst of the bubble in 2000
VII. The global financial crisis of 2008
- Collapse of the housing market and credit crisis
- Impact on the stock market and global economy
VIII. The coronavirus pandemic of 2020
- Impact on the global economy and financial markets
IX. Conclusion
The Great Depression (1929)
DJIA fell 80%
The Great Depression was a major economic downturn that began with the stock market crash of 1929 and lasted for more than a decade. It sent a tsunami across the global economy and financial markets, leading to widespread unemployment, a decline in international trade, and a collapse of confidence in the financial system.
Causes of the great depression
Economists still debate the causes of the Great Depression. However, it is widely agreed that the crash was a key factor in the economic downturn. Some believe the crash was a symptom of underlying economic problems, such as overproduction and rising inequality. In contrast, others argue that the crash was the leading cause of the depression.
The depression was also exacerbated by trade policies such as tariffs and other trade barriers, which led to a decline in international trade. The causes of the Great Depression were complex and multifaceted, but it is clear that the stock market crash played a central role in the economic downturn that followed.
Impacts on the stock market
The stock market crash of 1929 is often remembered as a dark and tumultuous moment in financial history. On October 29, 1929, the stock market lost nearly 25% of its value, marking the beginning of the Great Depression.
One of the contributing factors that magnified the crash was the sheer amount of leverage that investors had. When the market started to decline, these investors were forced to sell their stocks to pay off their debts, further exacerbating the stock price decline. This would later be known as “The Great Margin Call.” *
The crash’s effect was felt worldwide, as investors lost vast sums of money and confidence in the financial system was shaken. The credit crunch that followed led to a widespread economic downturn, with businesses struggling to stay afloat in the face of declining demand.
World War II (1939-1945)
Markets fell 50%
World War II had a substantial effect on the stock market. Many countries experienced economic disruption during the war as resources were diverted to support the war effort. This often led to inflation and a decline in the value of stocks. In addition, the uncertainty surrounding the war’s outcome caused volatility in the stock market. However, after the war ended, the stock market began to recover as economies worldwide began to rebuild and grow. In the United States, the stock market experienced a bull market in the 1950s and 1960s, fueled partly by the post-war economic boom.
Impact on global trade and financial markets
World War II particularly affected global trade and the financial markets. The war disrupted trade routes and led to the decline of international trade. Many countries imposed trade restrictions and tariffs to protect their industries, reducing global trade.
Influence on the stock market
The war also hurt the financial markets. The uncertainty surrounding the war’s outcome led to volatility in the stock market, and many investors lost money as the value of stocks declined. The war also led to a decline in the value of currencies and an increase in inflation, which negatively influenced the financial markets.
After the war ended, there was a reconstruction and economic recovery period, which led to a resurgence in global trade and the financial markets. The Marshall Plan*, a US-led initiative to provide aid to European countries to rebuild their economies, played a meaningful role in this recovery. The Marshall Plan helped to stabilize the financial markets and facilitated the growth of international trade.
The oil crisis of the 1970s (1973-1974)
Markets fell 43%
The oil crisis of the 1970s, also known as the energy crisis, was a period of reduced oil production and higher oil prices that occurred between 1973 and 1974. The crisis was caused by several factors, including the decision by OPEC to embargo oil exports, political instability in the middle east, increasing global demand for oil, and decreased production of oil in the United States.*
Oil embargo by Arab oil-producing countries
The oil embargo was a decision by Arab oil-producing countries to embargo exports to countries that supported Israel during the Yom Kippur War in 1973. The embargo was led by the Organization of Petroleum Exporting Countries (OPEC), which is an intergovernmental organization of oil-producing countries.
Impact on the stock market and global economy
The oil embargo put a chokehold on the global economy and financial markets. The embargo reduced the oil supply, which caused oil prices to skyrocket. Higher oil prices led to inflation and a decline in economic growth in many countries. The embargo also stifled the stock market, as the increased oil costs destroyed corporate profits.
The oil embargo also greatly influenced global trade, disrupting the oil supply and leading to a decline in oil trade and other energy-intensive products. This led to a shift towards alternative energy sources, such as solar power and wind energy, emphasizing energy conservation, which is not all bad by today’s standards.
Black Monday (1987)
DJIA fell 22.6%
Black Monday refers to the stock market crash that occurred on October 19, 1987. On that day, the Dow Jones Industrial Average (DJIA) experienced the largest one-day percentage drop in its history. The DJIA fell by 22.6% or 508 points, and other stock market indices worldwide also experienced substantial declines.
Causes of the crash
The cause of Black Monday is not fully understood, but there are several factors that are thought to have contributed to the crash. These include concerns about the economy’s health, high levels of debt and speculation in the stock market, and the use of computerized trading systems that accelerated the sell-off.*
Impact on the stock market
The Black Monday crash landed a huge blow to the global financial markets. The crash led to a decline in the value of stocks and eviscerated investor confidence. It also hurt the economy, as the decline in the stock market led to a reduction in consumer spending and a decline in business investment. Despite the negative effect of Black Monday, the stock market eventually recovered, and the economy reached new high’s in less than two years.*
The dot-com bubble (1997-2000)
NASDAQ fell 80%
The dot-com bubble, also known as the internet bubble, was a period of speculation and rapid growth in the stock market in the late 1990s and early 2000s. The bubble was fueled by the rapid expansion of the internet and the emergence of internet-based companies, many of which went public with initial public offerings (IPOs) and saw their stock prices soar.
Factors contributing to the bubble
During the dot-com bubble, investors poured money into internet-based companies, driving the stock prices of these companies to unsustainable levels. Many of these companies had no proven business models or revenue streams, and their valuations were based on speculation about their future potential.
Burst of the bubble in 2000
The dot-com bubble eventually burst, leading to a momentous decline in the stock market and the failure of many internet-based companies. The bubble negatively affected the economy, as the decline in the stock market led to a reduction in consumer spending and a decline in business investment. Even though this crash shook the U.S. economy, the stock market eventually recovered, and the economy returned to growth. According to money.com, it took the stock market 17 years to fully recover. *
The global financial crisis of 2008
Markets fell more than 50%
The global financial crisis of 2008, also known as the Great Recession, was a severe economic downturn that began in the United States and spread to other countries worldwide. The collapse of the U.S. housing market and the subsequent failure of several large financial institutions, including Lehman Brothers, a major investment bank triggered the crisis.
Collapse of the housing market and credit crisis
The housing market collapse was triggered by the proliferation of subprime mortgages, home loans issued to borrowers with poor credit histories. These mortgages often had adjustable interest rates that reset at higher levels after a few years, which made it difficult for borrowers to afford their monthly payments. As a result, many borrowers defaulted on their mortgages, leading to a wave of foreclosures.
The housing market’s collapse had a domino effect on the financial system, as many financial institutions had invested heavily in mortgage-backed securities, which were securities backed by pools of subprime mortgages. When the housing market collapsed, and borrowers defaulted on their mortgages, the value of these securities plummeted, leading to considerable losses for financial institutions.
The crisis led to a credit crunch, as banks and other financial institutions became reluctant to lend money, which slowed economic growth and led to high levels of unemployment. The credit crisis had a massive impact on the global economy and financial markets and was a critical factor in the global financial crisis of 2008.
Impact on the stock market and global economy
The crisis had far-reaching consequences and required a coordinated response from governments and central banks worldwide. Governments implemented stimulus measures to boost economic activity, and central banks lowered interest rates and provided liquidity to the financial system to stabilize the markets. Despite the efforts to mitigate the impact of the crisis, the global economy experienced a deep recession, and it took more than four years for the economy to recover fully.*
The coronavirus pandemic of 2020
Markets fell 30%
The coronavirus pandemic of 2020, also known as COVID-19, infected the global economy and financial markets. The pandemic, which originated in China and spread globally, led to widespread disruptions in economic activity as governments implemented measures such as lockdowns and travel restrictions to contain the spread of the virus.
Impact on the global economy and financial markets
The impact on the stock market was initially severe, as the market experienced a sharp decline in the early stages of the pandemic. The Dow Jones Industrial Average (DJIA) fell by more than 30% in the first few months of the pandemic. The market faced further challenges as the pandemic persisted, with stock prices fluctuating in response to developments such as the rollout of vaccines and the reopening of economies.
The impact of the pandemic on the economy was also severe, as the disruptions in economic activity led to a decline in gross domestic product (GDP) and a rise in unemployment. Governments and central banks worldwide implemented measures to support the economy and stabilize financial markets, including stimulus packages and interest rate cuts. Despite these efforts, the impact of the pandemic on the economy and financial markets was consequential, and the recovery has been uneven.
Effects on global trade
The coronavirus pandemic of 2020 had an enormous impact on global trade. The pandemic led to widespread disruptions in economic activity as industrial manufacturing came to a screeching halt at the hands of governments around the world. These measures harmed the global supply chain, disrupting the production and transportation of goods.
Initially, the pandemic led to a decline in demand for many products, as consumers reduced their spending due to economic uncertainty. This demand decline negatively impacted exports, as many countries saw reduced demand for their products. However, after stimulus checks lined the pockets of the American consumer, demand for products that were no longer available contributed to record amounts of inflation.
Conclusion
In conclusion, major global events such as wars, economic crises, and pandemics have significantly impacted the economy and financial markets. These events have disrupted trade, caused declines in the stock market and economic growth, and generated uncertainty for investors and businesses.
While the negative impacts of these events can be significant, the economy and financial markets have often demonstrated resilience and have eventually recovered and returned to growth. This is a testament to the importance of time in the market vs. timing the market.
Learn how to navigate economic instability
As a trader, you know that options trading can be a powerful tool for managing risk and making strategic investments. But even the most experienced traders can struggle in times of market uncertainty. That’s why we recommend checking out our Options Gold Room.
In the Options Gold Room, you’ll have the opportunity to learn from real, live, professional traders with years of experience navigating turbulent financial times. These experts will provide valuable insights and strategies that can help you take your options trading to the next level.
Whether you’re looking to improve your existing skills or learn new techniques, the Options Gold Room is the place to learn. With a community of like-minded traders and access to the latest market insights, you’ll have the support you need to succeed in the volatile world of options trading.
Don’t let the uncertainty of the stock market hold you back. Take your options trading to the next level with the help of the experts at Simplertrading.com. Sign up for the Options Gold Room today and build your financial future on solid ground.
