Every major (and minor) U.S. stock market crash since 1950

The U.S. market was in freefall over the past week as news reported that the spread of the coronavirus had finally contacted the West. The epidemic has now reached the U.S., Canada, and Europe. Outside of China and South Korea, Italy has been the hardest hit with 1,128 cases and 29 deaths as of writing.

From Monday, 24 February, to Friday, 28 February, the S&P 500 shed 383 points, a drop of 11.5% in the span of just five days – its worst weekly drop since the financial crisis in 2008. If you’re in a panic right now, it’s important to remember that market crashes happen all the time. If you take a look at the chart above (click to enlarge), the S&P 500 has gone through six major crashes since 1950 and many more minor ones sprinkled in between:

  • The recession of 1953 occurred due to a combination of events. After an inflationary period following the Korean War, the Federal Reserve tightened monetary policy in 1952. The spike in interest rates led to increased pessimism in the economy.
  • The 1958 Eisenhower Recession was a sharp worldwide economic downturn in 1958. It was the most significant recession during the post-World War II boom between 1945 and 1970. The recession was regarded as a moderate one based on the duration and extent of declines in employment, production, and income.
  • The Kennedy Slide or Flash Crash of 1962 during the presidential term of John F. Kennedy. The S&P 500 declined 22.5%, and the stock market did not experience a stable recovery until after the end of the Cuban Missile Crisis.
  • The 1966 credit crunch was brought on by inflationary pressure from the Vietnam war and years of economic expansion. In response, the Federal Reserve decided to tighten monetary policy which caused bank lending to dry up and led to a credit crunch.
  • The 1969-70 crash coincided with the Nixon Recession. Rising inflation, the ongoing Vietnam War, and monetary tightening continued to send markets downward in 1969. The S&P 500 fell more than 35% before hitting a bottom in mid-1970 before rebounding.
  • The 1973-74 crash was one of the worst stock market downturns in modern history. It was compounded by the outbreak of the 1973 oil crisis in October of that year when members of OPEC started an oil embargo.
  • The 1981-82 recession followed the wake of the 1979 Iranian Revolution which sent oil prices higher and started a second oil crisis. The Federal Reserve reported that there would be little or no economic growth in 1981, as interest rates were to continue rising in an attempt to reduce inflation.
  • Black Monday was the largest one-day percentage drop in history. On 19 October 1987, the Dow Jones Industrial Index fell 22.6% and the S&P 500 declined more than 18%. All of the twenty-three major world markets experienced a similar decline that October.
  • The 1990-91 recession began when Iraq invaded Kuwait in July 1990, causing oil prices to increase. The price spike was less extreme and of shorter duration than the previous oil crises, but the spike still contributed to the U.S. recession of the early 1990s.
  • The Dot-com bubble was a stock market bubble caused by excessive speculation in Internet-related companies in the late 1990s. Between 1995 and its peak in March 2000, the Nasdaq Composite index rose 400% only to fall 78% from its peak by October 2002.
  • The Global Financial Crisis was considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s. The crisis was followed by a global economic downturn, the Great Recession. This remains the steepest bear market in the S&P 500’s history.
  • The 2011 August stock market fall was triggered in the U.S. by the downgrading of America’s credit rating from AAA to AA+ for the first time. The U.S. had a AAA rating since 1941. In Europe, the European debt crisis caused markets to fall in France, Germany, Italy, Switzerland, and the UK.
  • The uncertainty caused by the China-U.S. trade war rattled investors in December 2018. The S&P 500 peaked in September 2018 and then dropped 19.73% by Christmas Eve. In China, the Shanghai Composite drops to a four-year low.
  • Fears about the 2019-20 coronavirus outbreak caused the Dow, Nasdaq and S&P 500 to drop more than 10% in a week. We’re in the midst of this now.

Despite all these numerous crashes, one thing you notice is that the stock market has continued to rise over the long term. This is mainly due to four reasons: population growth, economic growth, inflation, and the fact that, as an index, the S&P 500 always comprises the 500 best listed companies in the U.S.

If you know this and believe that these four factors will continue to hold true in many years or decades to come, then a market crash is essentially the best time to jump on the train and invest in the stock market.

The fifth perspective

When it comes to predicting the stock market, you and I are as clueless as a virgin who stumbles into Hugh Hefner’s home – we have no idea of what’s going to happen next. Just take the current outbreak, for example. No one really knows how far the virus will spread, how many more cases will emerge, or how long the outbreak will last. And if we don’t know that, how can we truly predict the effect — and its duration — on stocks markets worldwide.

Will stock markets fall even further from here? Who knows? But rather than trying to predict where the market will go, it’s more useful to simply stick to the principles of successful long-term investing – pick great companies that fall within your circle of competence and invest when their stock becomes undervalued.

This brings us back to our previous articles of having a watchlist ready for you to take action when prices fall far enough and saving up enough capital so you can fully take advantage of the opportunities that arise along the way down.

In the immortal words of Warren Buffett: ‘Be fearful when others are greedy, and greedy when others are fearful.’

Adam Wong

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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