The Stock Market Crash of 1987
The Stock Market Crash of October 19, 1987, was a monumental event that took the financial markets by surprise. The crash happened after a historically large economic depression that left stock prices dropping by 90 percent. The crash was a result of bad assumptions in computer-based trading programs that were being adopted by major investors and funds. These programs had little experience of broad market sell-offs, and therefore compounded losses. It was a shocking day for the markets, with the Dow Jones Industrial Average crashing 22 percent to 1,738.7. The stock market crashed 508 points, or 22 percent, on October 19, and it was the worst day since the Great Depression.
The cause of a stock market crash varies widely, but it typically occurs after an extended period of bull market activity. A stock market crash typically occurs when investors begin to question the overvaluation of a particular company’s shares. Panic selling and falling share prices will send the market downward. It can be difficult to predict when a crash is imminent, so understanding the factors that trigger a stock market crash will allow investors to minimize their losses and avoid the pitfalls of making bad decisions.
Several reasons for a stock market crash occurred. Several factors led to the financial crisis, including the COVID-19 pandemic. While the Fed was correct in increasing interest rates to cool the economy, the market began to fall. The housing bubble was the primary cause, but widespread investments in MBS spread the contagion throughout the economy. As a result, the stock market steadily fell throughout 2008. After the failure of Lehman Brothers on September 14, 2008, the S&P 500 Index dropped nearly 50 percent and the DJIA was down six percent by September 29.
Fears of high inflation and rising interest rates have led to the decline in stock markets around the world. US technology share prices have been particularly hit by this, with the Nasdaq Composite Index down 30% since November. The UK stock market, meanwhile, has been more resilient, though the FTSE fell to seven thousand points just last week and lost two percent in one day. If you’re thinking about investing, it’s important to remember that you are placing your capital at risk and should seek financial advice to protect your investments.
While the crash was inevitable, it was a tragic event for the economy. There were losses of billions of dollars, and thousands of investors lost their money. Because the market was so over-heated, the value of stocks dipped so low that stock tickers clocked hours behind. The Chancellor of the Exchequer, Snowden, said that the stock market had become a speculative bubble. Moreover, the massive investments of investment trusts in public utilities drove their prices up.
The aforementioned crashes may be an opportunity for enterprising investors. This approach can allow them to take advantage of the leverage to purchase distressed assets. In order to prevent being caught in the middle of a once-in-a-generation crash, however, investors should have a well-diversified portfolio. Diversifying their assets into non-equity-based funds will help them survive the market downturn. A diversified portfolio and an asset allocation based on your risk tolerance will protect you from a stock market crash.