When did the stock market crash of 2008 happen?
Updated October 31, 2018. The stock market crash of 2008 occurred on September 29, 2008. The Dow Jones Industrial Average fell 777.68 points in intra-day trading. Until 2018, it was the largest point drop in history.
How long did it take for the stock market to crash?
The stock market fell 90% during the Great Depression. But that took almost four years. The 2008 crash only took 18 months. The chart below ranks the 10 biggest one-day losses in Dow Jones Industrial Average history.
What was the biggest drop in the stock market in 2008?
The Balance The stock market crash of 2008 occurred on Sept. 29, 2008. The Dow Jones Industrial Average fell 777.68 points in intraday trading. 1 Until the stock market crash of 2020, it was the largest point drop in history.
What caused the stock market crash of 2020?
The Dow Jones Industrial Average fell 777.68 points in intraday trading. 1 Until the stock market crash of 2020, it was the largest point drop in history. The market crashed because Congress rejected the bank bailout bill. 2 But the stresses that led to the crash had been building for a long time.
How did the 2008 financial crisis affect the stock market?
The stock market crash of 2008 occurred on September 29, 2008. The Dow Jones Industrial Average fell by 777.68 points in intraday trading. Until the stock market crash of March 2020 at the start of the COVID-19 pandemic, it was the largest point drop in history.
What is the relationship between recessions and the stock market?
During a recession, stock prices typically plummet. The markets can be volatile with share prices experiencing wild swings. Investors react quickly to any hint of news—either good or bad—and the flight to safety can cause some investors to pull their money out of the stock market entirely.
What was the relationship between the stock market crash and the Great Depression?
The stock market crash of 1929 was not the sole cause of the Great Depression, but it did act to accelerate the global economic collapse of which it was also a symptom. By 1933, nearly half of America's banks had failed, and unemployment was approaching 15 million people, or 30 percent of the workforce.
What percentage of stock market crashed in 2008?
On October 24, 2008, many of the world's stock exchanges experienced the worst declines in their history, with drops of around 10% in most indices. In the U.S., the DJIA fell 3.6%, although not as much as other markets.
Does a stock market crash cause recession?
Stock market crashes can reduce business financing and consumer confidence, both of which can cause recessions. These types of crashes typically occur after periods of irrational exuberance, when investors stop caring about whether a stock's price accurately reflects the company's value.
What happens to the economy if the stock market crashes?
How a Stock Market Crash Affects the Economy. Stock prices rise in the expansion phase of the business cycle. 2 Since the stock market is a vote of confidence, a crash can devastate economic growth. Lower stock prices mean less wealth for businesses, pension funds, and individual investors.
What other issues resulted because of the stock market crash?
Equally relevant issues, such as overpriced shares, public panic, rising bank loans, an agriculture crisis, higher interest rates and a cynical press added to the disarray. Many investors and ordinary people lost their entire savings, while numerous banks and companies went bankrupt.
Why the stock market crash alone did not cause the Great Depression?
Still, like the stock market crash, protectionist trade policies alone did not cause the Great Depression. Money makes the economy function. Money evolved thousands of years ago because barter—the direct trading of goods or services for other goods or services—simply didn't work.
Was the crash big enough to cause the Great Depression?
Students may suggest that the stock market crash was big enough or that the collapse of the farm economy was big enough.) None of these alone was sufficient to cause the Great Depression, with the possible exception of bank panics and resulting contraction of the money stock.
How much did the stock market drop in 2008 and 2009?
Much of the decline in the United States occurred in the brief period around the climax of the crisis in the fall of 2008. From its local peak of 1,300.68 on August 28, 2008, the S&P 500 fell 48 percent in a little over six months to its low on March 9, 2009.
How long did the market take to recover from 2008?
The S&P 500 dropped nearly 50% and took seven years to recover. 2008: In response to the housing bubble and subprime mortgage crisis, the S&P 500 lost nearly half its value and took two years to recover. 2020: As COVID-19 spread globally in February 2020, the market fell by over 30% in a little over a month.
What year was the biggest stock market crash?
19291929 stock market crash The worst stock market crash in history started in 1929 and was one of the catalysts of the Great Depression. The crash abruptly ended a period known as the Roaring Twenties, during which the economy expanded significantly and the stock market boomed.
What happened in 2008?
The crash of 2008 comes on slowly, coming off a peak in 2007, but picks up in the fall of 2008 and begins a dramatic drop. Governments and central banks take massive stimulus action. This crash is brought on by a collapse in the United States housing market and the accompanying Great Recession. The Dow Jones average recovers its peak by 2013.
What is the crash of 1929?
The crash of 1929 is a valauble lesson in just how bad things can get. And this is to say, they can get really, really bad. Even without the historical context of the Great Depression, the chart is breathtaking. In this crash period, we see a world broken by the depression and later seared by World War II. By the time the Dow Jones Industrial Average regains its peak in 1954, the world has been completely and utterly transformed in every conceivable way.
When did the Dow Jones Industrial Average regain its peak?
In this crash period, we see a world broken by the depression and later seared by World War II. By the time the Dow Jones Industrial Average regains its peak in 1954, the world has been completely and utterly transformed in every conceivable way.
Does the Dow Jones have a survivorship bias?
I know that the Dow Jones has a survivorship bias, as it only includes the 30 top US companies of the day. But I used it because it is more historic, and also because for many the Dow Jones Industrial Average is the stock market. It also allows us to take a snapshot in time by seeing the components of the Dow (see below).
Reasons For the 2008 Financial Crisis
The US stock market collapse was tied to the collapse of major financial institutions, including Lehman Brothers and the government bailout of AIG (so it wouldn’t collapse). Financial institutions were in trouble because of over-exposure to declining housing prices.
Lessons From the 2008 Stock Crash
Similar to the 1929 crash and 2000 crash, it takes years for stocks to fully recover from a major meltdown. On the flip side, for those who have the resources to buy when prices start to recover after a crash, there are sizable gains to be had.
Read Up On Some Other Stock Market Crashes
1987 Crash – The 1987 stock market crash refers to the selloff that occurred on “Black Monday,” October 19. It was the largest single-day decline in the history of the US stock market–the Dow Jones Industrial Average (DJIA) lost 22.6%.
What was the difference between 2008 and 2008?
One critical difference to 2008 is, of course, that this is an intentional decline. Businesses are shutting down, not for lack of typical demand, but to purposely control the virus. In 2008, business practices that were quite unsustainable came to an halt. There’s an important distinction.
What does 2008 tell us?
Markets can drop fast, but rebound quickly as well. Thus 2008 tells us that things can get worse, but it also tells us that environments of real panic can often create real opportunity for disciplined longer-term investors. Follow me on Twitter or LinkedIn .
Is the housing bubble reckless?
Many activities in the froth of the housing bubble were downright reckless. In contrast, many activities having to shut down today from airlines to sit-down restaurants are necessary for the economy. The question of course, is whether, and how fast, all these activities can return once normality resumes.
Is 2008 bear market better than 2008?
There are many bear markets, most in fact, that turned out a lot better than 2008 in terms of their lows. So a comparison with 2008 is a comparison with one of the absolutely worst market environments on record. That may not come to pass.
Has the Fed cut the effective Fed funds rate to zero?
The Fed has already cut the effective fed funds rate to zero, with additional liquidity measures. Government stimulus also appears to be coming very soon. Events are moving on a more rapid timetable than 2008.
Can the market halve in 2008?
Remember market history also carries positive lessons. Yes, from around this point, using the 2008 analogy, maybe markets could halve to their ultimate low. However, following the same pattern, buying at the same decline point in 2008 an investor would also be back to even within around a year, and doubled their money 6 years later.
What is the problem with Chinese real estate?
The problem is that real estate makes up the bulk of Chinese household wealth - 74.7%. So when prices start to fall, it has a huge impact. Chinese homeowners will start to go underwater. While Chinese citizens aren't going to lose their homes, they will lose wealth - and that means less spending.
Is China's economy too big?
But China's economy is too big, and the world too dependent on it, for its problems not to ripple out into the global stock markets – including those in the United States. And given the steady stream of troubling news out of China, the worst may be yet to come.
Why did the stock market crash in 2008?
In all, the stock market crash 2008 as a result of a series of events that eventually led to the failure of some of the largest companies in the US.
What was the impact of the 2008 stock market crash?
There is no doubt behind the saying, that the crash pushed the banking system towards the edge of collapse.
What was the Dow value in September 2008?
The day was ended at the Dow value of 11,388.44. On September 20, 2008, the bank bailout bill was sent to Congress by Secretary Paulson and Federal Reserve Chair. The Dow fell to 777.68 points during the intraday trading that increased panic in the Global Market.
How many points did the Dow drop in 2008?
By September 17, 2008, the Dow fell by 446.92 points. By the end of the week on September 19, 2008, the Fed established the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility that committed to offer loans to banks to buy Commerical paper from the money market funds.
How much did the Fed lose from Lehman Brothers?
By making $85 billion loans for 79.9% equity the Fed took ownership of the AIG. With the collapse of Lehman Brothers, there was a loss of $196 billion that increased the panic among many businesses. Bank has driven up the rates as they were afraid to lend money. By September 17, 2008, the Dow fell by 446.92 points.
What was the fourth cause of the 2008 financial crisis?
The fourth cause of the crash of 2008 was found to be the depression era Glass Steagall Act (1933) that allowed banks, securities firms and other insurance companies to enter into each other’s markets resulting in the formation of the bank that was too big to fail.
What were the causes of the Federal Reserve's crash?
Some of the top reasons for the crash are: Mild Recession in the Federal Reserve. Federal Reserve the Central Bank was facing a mild recession since 2001. The recession period resulted in the reduction of the federal funds rate from 6.5 to 1.75 from May 2000 to December 2001.
What was the financial crisis of 2008?
The 2008 financial crisis had its origins in the housing market, for generations the symbolic cornerstone of American prosperity. Federal policy conspicuously supported the American dream of homeownership since at least the 1930s, when the U.S. government began to back the mortgage market. It went further after WWII, offering veterans cheap home loans through the G.I. Bill. Policymakers reasoned they could avoid a return to prewar slump conditions so long as the undeveloped lands around cities could fill up with new houses, and the new houses with new appliances, and the new driveways with new cars. All this new buying meant new jobs, and security for generations to come.
What was the Commodity Futures Modernization Act of 2000?
Congress gave them one way to do so in 2000, with the Commodity Futures Modernization Act, deregulating over-the-counter derivatives—securities that were essentially bets that two parties could privately make on the future price of an asset. Like, for example, bundled mortgages.
Why did the mortgage salesmen make these deals without investigating a borrower's fitness or a property's
The salesmen could make these deals without investigating a borrower's fitness or a property's value because the lenders they represented had no intention of keeping the loans. Lenders would sell these mortgages onward; bankers would bundle them into securities and peddle them to institutional investors eager for the returns the American housing market had yielded so consistently since the 1930s. The ultimate mortgage owners would often be thousands of miles away and unaware of what they had bought. They knew only that the rating agencies said it was as safe as houses always had been, at least since the Depression.
What was the financial environment like in the early 21st century?
The financial environment of the early 21st century looked more like the United States before the Depression than after: a country on the brink of a crash. pinterest-pin-it. An employee of Lehman Brothers Holdings Inc. carrying a box out of the company's headquarters after it filed for bankruptcy.
2007
2008
- At the end of January, the BEA revised its fourth-quarter 2007 GDP growth estimate down.9 It said growth was only 0.6%. The economy lost 17,000 jobs, the first time since 2004.10 The Dow shrugged off the news and hovered between 12,000 and 13,000 until March.2 On March 17, the Federal Reserve intervened to save the failing investment bank, Bear Stearns. The Dow dropped …
September 2008
- The month started with chilling news. On Monday, September 15, 2008, Lehman Brothers declared bankruptcy. The Dow dropped more than 200 points.2 On Tuesday, September 16, 2008, the Fed announced it was bailing out insurance giant American International Group Inc. It made an $85 billion loan in return for 79.9% equity, effectively taking ownership. AIG had run out of cash. It wa…
October 2008
- Congress finally passed the bailout bill in early October, but the damage had already been done.24 The Labor Department reported that the economy had lost a whopping 159,000 jobs in the prior month.25 On Monday, October 6, 2008, the Dow dropped by 800 points, closing below 10,000 for the first time since 2004.26 The Fed tried to prop up banks by lending $540 billion to money mar…
November 2008
- The month began with more bad news. The Labor Department reported that the economy had lost a staggering 240,000 jobs in October.34 The AIG bailout grew to $150 billion.35 The Bush administration announced it was using part of the $700 billion bailouts to buy preferred stocks in the nations' banks.36 The Big Three automakers asked for a federal bailout. By November 20, 20…
December 2008
- The Fed dropped the fed funds rate to 0%, its lowest level in history.29 The Dow ended the year at a sickening 8,776.39, down almost 34% for the year.2
2009
- On January 2, 2009, the Dow climbed to 9,034.69.2 Investors believed the new Obama administration could tackle the recession with its team of economic advisers. But the bad economic news continued. On March 5, 2009, the Dow plummeted to its bottom of 6,594.44.37 Soon afterward, President Barack Obama's economic stimulus plan instilled the confidence nee…
Aftermath
- Investors bore the emotional scars from the crash for the next four years. On June 1, 2012, they panicked over a poor May jobs report and the eurozone debt crisis. The Dow dropped 275 points.39 The 10-year benchmark Treasury yield dropped to 1.47.40 This yield was the lowest rate in more than 200 years.41It signaled that the confidence that evaporated during 2008 had not q…
A Much Faster Decline and Policy Reaction
valuation
- Valuation is an important consideration too. Here, it is perhaps best to look at Shiller’s price earnings ratio. This smooths 10 years of earnings to arrive at an averaged, longer-term earnings number against which to value the markets. That’s helpful because we have no idea what 2020 earnings will look like at this point and CEO’s may chose to kitchen sink the numbers this year b…
Lack of Data
- One key difference to the latter stages of 2008, though, is we don’t have much economic data in yet whereas in the last recession the data evolved more gradually and the picture was clearer. The Fed’s James Bullard is estimating 30% unemployment in Q2 2020. Despite the Fed’s technical skill, that’s obviously conjecture at this point. We simply don’t know the detailed economic fallou…
An Intentional Decline
- One critical difference to 2008 is, of course, that this is an intentional decline. Businesses are shutting down, not for lack of typical demand, but to purposely control the virus. In 2008, business practices that were quite unsustainable came to an halt. There’s an important distinction. Many activities in the froth of the housing bubble were downright reckless. In contrast, many activities …
Not There Yet
- Also, note a comparison with 2008 is necessarily a pessimistic setup for investors. 2008 itself had echos of the 1930s. It was a rare event. We haven’t seen much detailed data yet on how 2020 will trend. Of course, scary predictions fill the void. Still, there’s a monumental distinction between predictions and data. There are many bear markets, most in fact, that turned out a lot better tha…