Everything to Know About Mkt Crashes

Posted by The Reformed Broker

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1929-crashSince everyone is talking about stock market crashes this week, let’s add some context here…

Since the invention of the Dow Jones Industrial Average at the turn of the last century, there have been eleven instances in which stocks declined by more than 35% from peak to trough, or what you would term a market crash. We’ll talk about how the Dow Jones Industrial Average behaved during these crashes as it is ouR oldest index; there was no such thing as the S&P 500 until 1957 and the Nasdaq didn’t come along until later.

The most benign of these eleven crashes took place between January of 2000 and October of 2002. It lasted for 999 days and lopped off 37.8% of the Dow’s price, ending that fall at around 7286. The damage in the tech-heavy Nasdaq was obviously much worse but, unless you had abandoned all of your blue chips to chase dot com stocks exclusively, it wasn’t the end of the world. It should be noted that the tech crash was augmented by the uncovering of massive frauds at both Enron and WorldCom and punctuated with the September 11th attacks.

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