Timeline of US Stock Market Crashes

When a stock market experiences a crash, it is often the result of any number of economic events spurring investors to overreact out of fear. As the right circumstances and any bad news about the economy have the potential to set off a chain reaction that leads to a crash, these types of financial crises have appeared frequently throughout history. In the United States, stock market crashes go all the way back to the 18th century. Although there is no official timeline of U.S. stock market crashes due to differing opinions on what actually constitutes a “crash,” here’s what to know about the financial crises that we think fit the bill.

Stock Market Crash Basics

The term stock market crash refers to a sudden and substantial drop in stock prices. Stock market crashes are often the result of several economic factors, including speculation, panic selling, and/or economic bubbles, and they may occur amid the fallout of an economic crisis or major catastrophic event. While there is no official threshold for what qualifies as a stock market crash, a common standard is a rapid double-digit percentage decline in a stock index, such as the Standard & Poor’s 500 Index or Dow Jones Industrial Average (DJIA), over a couple days.

The effects of a stock market crash can have a major impact on the economy; it often takes a significant amount of time for full recovery. However, today there are measures in place to help prevent a stock market crash, such as trading curbs (also known as circuit breakers) that can halt any trading activity for a specific period of time following a sudden decline in stock prices.

Note that there is a difference between stock market crashes and bear markets. The latter term also refers to when a market experiences prolonged price declines; however, stock market crashes are typically more abrupt. Although it’s common for bear markets and stock market crashes to occur simultaneously, it is entirely possible to have one without the other. While this article focuses primarily on stock market crashes, many bear markets will also be covered due to the overlap.

Early US Stock Market Crashes

The first U.S. stock market crashes took place in March 1792. Prior to the Financial Crisis of 1791–92, the Bank of the United States over-expanded its credit creation, which led to a speculative rise in the securities market. When a number of speculators ultimately defaulted on their loans, it set off panic selling of securities. In response, then-Secretary of the Treasury Alexander Hamilton cajoled many banks into granting discounts to those in need of credit in multiple cities, in addition to utilizing numerous policies and other measures to stabilize U.S. markets.

While Wall Street’s first crash only lasted about one month, it was soon followed by a series of “panics” that occurred throughout the 19th and early 20th centuries. In the U.S., these included:

• Panic of 1819: Resulted from a collapse in cotton prices, a credit contraction, and over-speculation in land, commodities, and stocks. America’s first great economic depression came to an end in 1821.
• Panic of 1837: Primarily attributed to a real estate bubble and erratic American banking policy. Then-President Andrew Jackson refused to extend the Second Bank of the United States’ charter, enabling state banks to recklessly issue banknotes. This panic led to a major economic depression that endured for six years.
• Panic of 1857: Set off by the failure of the Ohio Life Insurance and Trust Company, which led to New York bankers putting restrictions on transactions that, in turn, resulted in panic selling. Bank closures and a depression soon followed, the latter of which lasted three years.
• Panic of 1884: Triggered by the failure of a small number of financial firms in New York City, primarily the Metropolitan National Bank. The institution’s closure raised public concerns about the banks in its network, but the panic was largely contained to New York and swiftly ended.
• Panic of 1893: Caused one of the most severe depressions in U.S. history. Amid a run on gold in the U.S. Treasury and slowed economic activity, unemployment jumped, asset prices plummeted, and panic selling ensued.
• Panic of 1896: A continuation of the Panic of 1893 following a brief pause before the U.S. economy fell into another recession in late 1895. It wouldn’t fully recover until mid-1897.
• Panic of 1901: Occurred largely as a result of a struggle between Jacob Schiff, J.P. Morgan & James J. Hill, and E. H. Harriman over Northern Pacific Railway. Short sellers were caught up in a frenzy as the price of Northern Pacific skyrocketed, causing stocks and bonds to drop dramatically. The Panic of 1901 ended with a truce among the financial titans.
• Panic of 1907: The first financial crisis of the 20th century, which spurred the monetary reform movement that led to the establishment of the Federal Reserve System (FRS). Following a failed attempt by F. Augustus Heinze and Charles W. Morse to corner the stock of United Copper, several banks associated with the two men succumbed to runs by depositors. This led to additional runs on numerous trust companies, which resulted in a severe reduction in market liquidity. If not for the intervention of J.P. Morgan, the New York Stock Exchange might very well have closed.

Amid the 19th century panics, Black Friday (not to be confused with a shopping holiday of the same name) occurred on Sept. 24, 1869. This event saw the collapse of the gold market after two speculators—Jay Gould and Jim Fisk—concocted a scheme to drive up the price of gold. The duo also recruited Abel Rathbone Corbin to convince then-President Ulysses S. Grant to further limit the metal’s availability to ensure their plan was successful.

However, President Grant eventually grew wise to their plot and ordered the sale of $4,000,000 in government gold in response. Although Gould and Fisk had succeeded in driving up the price of gold, once the government bullion hit the market, panic ensued and the price of gold plummeted. Investors desperately tried to sell their holdings, and as many had taken out loans in order to finance their purchases, were left without any money to pay back their debts the aftermath.

Contemporary US Crashes

Wall Street Crash of 1929

Prior to the Wall Street Crash of 1929, share prices had risen to unprecedented levels. The Dow Jones Industrial Average (DJIA) had increased six-fold from 64 in August 1921 to 381 in September 1929. However, at the end of the market day on Oct. 24, 1929, which became known as Black Thursday, the market was at 299.5—a 21% decline from the aforementioned high. A selling panic had begun. The following week, on Oct. 28, the Dow declined approximately 13%. One day later, on Black Tuesday, the market dropped again, this time by nearly 12%. The crash lasted until 1932, resulting in the Great Depression—by the end of which stocks had lost nearly 90% of their value. The Dow didn’t fully recover until November 1954.

Although the exact cause(s) of the 1929 crash isn’t/aren’t completely agreed upon, two factors are commonly cited as the primary triggers. First was an attempt by governors of many Federal Reserve Banks and a majority of the Federal Reserve Board to combat market speculation. Second was a major expansion of investment trusts, public utility holding companies, and the amount of margin buying. The latter three elements fueled an increase in the prices of public utility stocks, which were vulnerable to any bad news regarding utility regulation. So, when a deluge of bad news arrived in October, utility stocks plummeted. This forced margin buyers to sell, inciting panic selling of all stocks.

Recession of 1937–38

The third-worst downturn in the 20th century, the Recession of 1937–38 hit as the U.S. was in the midst of recovering from the Great Depression. The primary causes of this recession are believed to be Federal Reserve and Treasury Department policies that caused a contraction in the money supply, in addition to other contractionary fiscal policies. As a result, real GDP fell 10%, while unemployment hit 20%, having already declined considerably after 1933.

In the year leading up to the recession, Fed policymakers doubled reserve requirement ratios to reduce excess bank reserves. Meanwhile, in late June 1936, the Treasury began to sterilize gold inflows by preventing them from becoming part of the monetary base, which halted their effect on monetary expansion. Once the Fed and the Treasury reversed their policies and the Roosevelt administration began pursuing expansionary fiscal policies, the recession came to an end.

Kennedy Slide of 1962

The…