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Top 5 Worst Stock Market Crashes In USA History

The Dow Jones Industrial Average fell over 700 points, entering bear market territory before rebounding slightly to close at a 1.6 percent loss. The S&P 500 and Nasdaq Composite did not fare mostly well either, with both indexes ending the day in the red.

Considering the market is still reeling from the Federal Reserve’s latest 0.75% rate hike, inflation near its highest in over 40 years, and a likely recession on the horizon, many investors are worried that there will be another crash in the coming weeks or days.

There were five largest worst stock market crashes in history, and each time it bounced back. The largest variable is how long it took to recover.

Melissa Bouchillon, a CFP and managing partner at Sound View Wealth Advisors in Savannah, Georgia, says that we never know what the next big crash is, whether it’s COVID-19, the Great Recession, or what we are going through today. You always have to have a component of your portfolio prepared for when things get bad.

Let us check out the top five worst stock market crashes in USA history and how to get in financial shape if one is on its way.

About Stock Market Crash

A market crash is a sharp, sudden drop in stock prices caused by various factors. There is no set benchmark for what constitutes a crash.

The Five Worst Stock Market Crashes In The History Of The USA

Below are details about the worst stock market crashes in the USA’s history.

2020: The COVID-19 Crash

  • Market loss: 34%
  • Time to recover: 33 days

The recent crash still on many investors’ minds is the one caused by the COVID-19 pandemic. Because of the virus, global governments shut down entire economies to lessen the spread, causing an economic shock that rattled investors.

Unlike the other crashes on this list, this one hit surprisingly fast and recovered quickly. The stock market decreased by 34% but regained its peak in only 33 days, a historically fast turnaround. The journey to the bottom and subsequent recovery was slower than in previous crashes.

The US government partially reacted by injecting trillions of dollars into the US economy. It was the most cash added to the circulation between printing money and stimulus payments since 1945.

Despite the terrible human costs of the pandemic & the financial suffering felt by millions, what followed was a surprising upward run in the market. Companies reported record profits, and valuations soared. For a while, the market reacted as though the crash had never occurred.

2008: The Subprime Mortgage Crisis

  • S&P 500 loss: 57%
  • Time to recover: 17 months

Linda García, the founder of In Luz We Trust, a financial coaching business, explains that the cause of this crash was banks’ loose lending practices for mortgages (particularly subprime mortgages), which had a ripple effect in the entire economy, resulting in the worst crash since the Great Depression. It was a very specific trigger. There were terrible loans in the housing market.

Kimberly R. Nelson, the advisor at Coastal Bridge Advisors, adds that the S&P 500 fell around 57% from its peak and took global markets down with it. Valuations of homes were not good, and prices were through the roof.

Recovery came from government bailouts, fresh cash injections into the economy, and interest rates cut down to historically low levels.

It took nearly 17 months for the market to recover. When it did, one of the longest and most profitable bull runs in history began in 2009 and lasted to 2020 – the start of the COVID-19 pandemic. During bull markets, market confidence is high, and investors are eager to buy stocks.

2000: The Dotcom Bubble

  • Nasdaq loss: 77%
  • Time to recover: 15 years

When the 21st century rolled around, the stock market was reeling from the “dot-com bubble” aftermath caused by the major overvaluation of tech companies in the late 1990s. A bubble is caused by valuations that don’t match a company’s financial stability and are often spurred by eager investors trying to chase the next big thing – even if a company doesn’t have revenue. It was the case with many of these tech companies.

It was the first big crash for tech stocks that make up the Nasdaq Composite Index. Between 1995 & 2000, the Nasdaq rose over 500%. By 2002, the index fell nearly 77% and wouldn’t reach its former peak again for almost 15 years.

1973: The Oil Crisis and Economic Recession

  • Market loss: 48%
  • Time to recover: 21 months

This crash was the worst since the Great Depression at that time. There was not only one event that caused the crash, but a series of events.

First, several financial reforms, including de-pegging or unlinking the dollar from gold, undermined the dollar’s stability and contributed to runaway inflation. Parallelly, there was an economic recession, then the 1973 oil crisis, in which the price of oil approximately quadrupled and sped up inflation much faster.

All combined, these events created a crash that saw the market decline by 48%, taking about 21 months to recover.

1929: The Worst Crash in History

  • Dow loss: 89%
  • Time to recover: 25 years

The stock market crash of 1929 was the end of the Roaring 20s and started the Great Depression. It was one of the worst stock market crashes. The stock market contracted so much that it would take until 1954 to regain its pre-crash value fully.

Stocks began dipping in September of that year, but two consecutive days in late October, the 28th and 29th, saw a nearly 13% decrease and another 12% dip, respectively. These days are now known as Black Monday and Black Tuesday, the biggest two-day loss in history. It was enough to bounce investors into panic selling.

A couple of weeks later, the Dow lost half its value (the S&P 500 and Nasdaq were not used as markers then) and entered a long bear market. In 1932, the market found its ultimate bottom at a staggering 89% below its peak.

This period was tumultuous, with the Great Depression, Dust Bowl, World War II, and other distressing international events. Hundreds of companies filed for bankruptcy.

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