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October is a frightening month filled with spooky costumes and creepy thoughts. It’s also a notorious month for intensified market volatility.
With Halloween approaching, it’s only fitting that we relive some of the scariest moments in stock market history.
The most terrifying financial moments are usually when the stock market is crashing. However, not everything in this article is about the worst market crashes.
Heightened uncertainty and unorthodox monetary policy have created some chilling moments on Wall Street as well.
So, grab a pumpkin spiced coffee or an apple cider mimosa, and try not to panic sale your stocks.
The 1929 Market Crash and Wall Street Jumpers
The most infamous market crash is likely the one that happened on October 29th, 1929. “Black Tuesday,” as it’s called, is the day the New York Stock Exchange collapsed. The catastrophic event was the harbinger of the Great Depression, one of the worst economic fallouts in history.
The escalated selling started on October 24th, 1929, and by October, 29th the Dow Jones Industrial Average dropped 24.8%. Before the crash, the Dow was already down 30% from its September highs.
The collapse caused thousands to lose their life savings and obliterated people’s confidence in Wall Street.
Along with all the financial destruction, a wave of suicide tales hit the United States. Rumors spread that flocks of investors were jumping out of buildings due to the crash. While the Wall Street Jumper’s legend was proven to be mostly a myth, two people did jump to their death.
So, there may not have been hundreds of people leaping off of buildings. But some tragic events turned out to be horrifyingly real. Multiple people did indeed kill themselves due to the market crash. Just not all by jumping to their death. One man even lit himself on fire. How many calls do you think he had?
Seriously though, the 1929 crash is a very unfortunate event in market history. The repercussions and Great Depression that followed created an upsurge of suicides. The suicide rates increased from 17% per 100k people in 1929 to 21.3% in 1932.
South Sea Bubble
This speculative bubble grew from a popular idea–getting rich fast. And it ended like most attempts to quickly obtain wealth, badly.
The excitement centered around the South Sea Company’s slave-trading contract with the British Government. Investors were overly hyped about the potential profits of a slave-trading boom. The 1700s were a dark time indeed.
The stock rose from 128 per share to over 1,000 in a matter of 7 months. It only took four months to erase all the gains and then some. The stock was simply overvalued, and speculators created one of the biggest bubbles in history.
The crash resulted in a serious blow to the British economy, but the Government successfully prevented a financial collapse.
Famous physicist and mathematician Sir Isaac Newton had also fallen prey to the South Sea Bubble. Newton was a wealthy man and usually a conservative investor. He invested in South Sea shares before the bubble and sold for a profit.
As the stock continued to rise, Newton grew envious of his friends that were making a killing. He sold most of his bonds and bought copious amounts of South Sea stock right near its peak. Newton was later forced to sell for a massive loss after the crash.
September 11th Terrorist Attacks
The September 11th terrorist attacks were a terrifying event for the US and the rest of the world. While the attacks didn’t result in a devastating market crash, the event is one of the scariest in stock market history. Why? The whole country was at an unprecedented time of uncertainty.
The New York Stock Exchange and the Nasdaq did not open for trading that day. If they did, there would likely have been a stock market meltdown. The markets stayed closed until September 17th–one of the most prolonged shutdowns since the 1930s.
Closing the market helped subside some of the selling. But it couldn’t entirely prevent a deep slide in stocks.
On the first day of trading, the market sharply declined by 7.1%. And the S&P 500 dropped more than 14% over the week. Airline and insurance companies were among the worst-hit industries.
All the innocent people and heroes who died on September 11th will never be forgotten. The gripping terror from the event affected much of the world, including the stock markets.
The US economic resilience and patriotism proved strong. The nation and the stock market have since significantly recovered.
Black Monday
Yet another spooky October crash, this time the horror transpired in the late 1980s. The dreadful Black Monday befell on October 19th, 1987. It’s considered the first modern financial crash due to the use of computerized trading. Such technological innovations at the time are said to have exacerbated the sell-off.
The single-day meltdown that occurred on Black Monday is the worst percentage drop in history (so far). The Dow Jones Industrial average dropped a staggering 22.61% in one day! The tremendous crash echoed throughout the world, causing a global sell-off.
What was the cause of the Black Monday drop? No one knows the precise reason, but there are many theories. Investors blamed a slowing US economy, escalated geopolitical tensions, and falling oil prices.
But the biggest culprit, like most crashes, was panic.
Subsequently, the SEC has created multiple protective devices to prevent a panic-selling meltdown. Thanks to Black Monday, things like circuit breakers, trading curbs, and the “Plunge Protection Team” (PPT) were introduced.
While these defensive market mechanisms sound nice, they still can’t completely prevent a market crash.
2010 Flash Crash
Your gains can disappear in a flash. At least that’s what happened to many investors during the 2010 flash crash. On May 6th, 2010, the Dow Jones dropped nearly 9% in just a matter of minutes.
Like the Black Monday crash, a lot of blame was put on computers and high-frequency trading.
Investors went wild speculating what had caused the crash. Some thought it was panic, a cyber-attack, or even fat-fingered orders. Interestingly enough, a report came out later in the year that pointed to the main reason. A mutual fund known as Waddell & Reed placed a $4.1 billion sell order.
The fund used an automated algorithm to sell futures contracts. The massive dump sparked selling among other traders and snowballed the crash. $56 billion’ worth of shares traded hands in just 20 minutes!
The Waddell and Reed “fat-finger” trade is blamed for the crash but isn’t entirely proven to be the only cause.
You could chalk it up to the massive sell order, high-frequency trading, and panic. But what exactly happened and how remains a mystery.
Dot-com Bubble
The internet created a huge bubble in the late 90s that ended pretty badly in the early 2000s. Droves of internet-based companies flooded the market. Speculators were beyond bullish and bought anything that had a “.com” in its name.
There was a strong belief that if the company operates online, it will be super profitable in the future. Investors ignored all the red flags, and venture capitalists were beyond reckless.
Cheap easy money, overconfidence, speculation, and internet euphoria fueled the bubble.
The expectations of the internet and the overvalued companies involved were too damn high. As a result, the stock market crashed, and thousands of .com companies went bankrupt.
Blue chips were not safe from the carnage and also suffered serious losses. Even the most successful dot-com companies were highly overvalued.
The dotcom bubble is the perfect lesson as to why fundamentals matter. The hype and ignorance amongst speculators will always backfire eventually. Fear of missing out and the belief that it’s different this time ran high during the tech bubble.
Many believe that the same cycle is happening all over again. Fundamentals are becoming less and less important. Retail speculation is soaring, and the belief that stocks only go up is quite strong. Is it really “different this time?”
2008 Financial Crisis
One of the scariest and most talked about moments in stock market history is the 2008 financial crisis. The crisis nearly caused the complete collapse of the US economy. The market crash brought about the great recession, and the economy hasn’t really been the same since.
What caused the 2008 financial crisis? Many things were involved, but it was essentially due to a real estate bubble and unregulated Wall Street practices.
Banks were giving out interest-only sub-prime mortgages to anyone and everyone. The more mortgages they gave out, the more money they made. The same goes for the Hedge funds that traded the mortgage-backed securities (MBS).
They threw gasoline on the fire and created complex derivate packages that masked the risk of these sub-prime loans.
If you haven’t watched the Hollywood hit “The Big Short,” I strongly recommend you do. It’s quite entertaining and does a terrific job explaining the 08 collapse.
The music began to stop once the housing supply outpaced demand and defaults rose. People couldn’t afford their mortgage payments, and they couldn’t sell their homes either.
One of the largest investment banks, Lehman Brothers, went bankrupt while bailouts saved all the others.
The 2008 crisis is without question one of the scariest moments in financial markets.
Coronavirus Lockdowns
One of the most recent market meltdowns happened in early 2020 when COVID-19 swept the globe. Government-mandated lockdowns put the US economy to a screeching halt. This had never happened before in modern history.
The economic uncertainty was flat out disturbing.
Between mid-February to late March, the Dow Jones Industrial Average crashed by over 37%. And the rout in the crude oil market was even worse.
The black swan event caused the price of oil to drop from near $60 a barrel to record lows of -$37.63. That’s right, negative oil prices. Something that we will probably never see again in our lifetimes.
The coronavirus pandemic ushered in the demise of many big and small retail businesses. Most small businesses were forced to close while large corporations were allowed to keep their doors open. Debates of who and what is and isn’t essential grew fierce.
The coronavirus seemed to have come at the worst or most convenient time for the US economy. Signs of a recession were already flashing, and the pandemic greatly accelerated the slowdown.
Many are comparing our current economic fallout to the likes of the Great Depression. While that is yet to be seen, we did have a record-breaking GDP contraction and still face astronomical unemployment.
2020, in general, along with the coronavirus crash, has undoubtedly been an alarming event. One that will be talked about for years to come.
QE Infinity
How central banks reacted to the COVID meltdown is pretty terrifying by itself. The Federal Reserve went completely nuclear. They started throwing everything they had at the markets until something stuck. Now they are all in.
Currently, it’s hard even to imagine a market that isn’t dependent on central banks. That’s a spine-chilling thought. Where would the S&P 500 be if the Fed wasn’t propping everything up?
“QE Infinity” is unlimited buying of treasury debt, mortgage back securities, junk bonds, and whatever the hell else they feel like scooping up. There is no cap, no regulation, and no real end in sight.
Who knows how big the Federal Reserve’s balance sheet will grow? It’s already projected to reach $10 trillion by year-end!
Criticism of central banks is given out heavy-handedly by many investors. Yet can any of us do a better job? Quantitative easing and liquidity programs are keeping the music going for now.
But while the music plays, a widening income inequality gap continues to grow.
Kicking the can down the road and letting the money printer go brrrr is a sick joke. It may be funny now, but the repercussions of reckless monetary policy could be catastrophic.
To say that the US financial system is a mess is a total understatement. You’ll be hard-pressed to find anyone that is 100% confident that the Fed knows what they are doing. They clearly don’t. And that’s scary.
Final Thoughts
Reminiscing about the blood-curdling moments in stock market history can unnerve almost any investor. However, there is something that will ease your mind. Despite all the awful moments, the markets have always proven resilient in the long run.
During financial crises, emotions run high, and bad investment decisions are often made.
No matter how scary things get, don’t panic. Stick to your investment plan and avoid letting your imagination run wild. Save that for the actual horror movies.
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