Over the past few months, investors have been on the edge, watching the market cycle through highs and lows and unsure of what’s next. It’s the nature of the beast, and it’s not for the faint-hearted.  

The stock market has been making dreams come true or breaking hearts since the 1600s. It’s gone through giddy booms and devastating busts, taking investors on a financial roller coaster for centuries. 

The Lows 

Market crashes happen when investor sentiment suddenly changes, leading to panic selling. Economic problems, excessive speculation, or unexpected events often trigger them.  

1. The Crash of 1929

The Stock Market Crash of October 1929 began the Great Depression. Over the next few years, the market lost nearly 90% of its value. The crash was caused by people buying stocks with borrowed money, making risky investments, and a weak economy.  

When investors realized their stocks weren’t worth the money they were printed on, they panicked and started selling their shares quickly. It took decades before the market recovered in the 1950s. 

2. Black Monday (1987)

Over the next few years, the market experienced the usual ripples. That would end in the late eighties. On October 19, 1987, the Dow Jones Industrial Average dropped by about 22% in just one day, marking the largest one-day percentage decline in history. 

Black Monday was partially caused by computerized trading systems, which were programmed to sell stocks as prices dropped. Worries about rising interest rates and inflation added to this. The sudden sell-off created a domino effect, leading to a massive price drop. 

3. The Dot-Com Bubble (2000)

The stock market returned to normal and was smooth sailing for investors until the 2000s. The turn of the twenty-first century marked the next stock market low when the dot-com bubble burst. At this point, the rapid rise of tech and internet stocks was in full swing. 

The problem started in the late 1990s as investors poured money into tech, expecting the industry to grow. Many of these companies were overvalued and didn’t profit enough to justify their inflated stock prices. As they did in the 1920s and early 30s, frantic investors sold off their shares.  

4. The Financial Crisis of 2008

The twenty-first century started with a turbulent stock market, but it was set to get even rockier. Every bubble must burst; in 2008, it was the housing market’s turn. Banks had been giving out risky loans to people who couldn’t afford them. Predictably, many of these homes ended in foreclosure. When the housing market collapsed, it caused massive losses for banks and other financial institutions. The Dow Jones dropped by over 50% from its peak, making this the worst market decline since the Great Depression.  

5. The COVID-19 Crash (2020)

The world changed in many ways in 2020. Most of them drove the stock market into the ground.  

Fears of the pandemic’s economic impact, including lockdowns, business closures, and job losses, fueled stock market woes. Investors were uncertain about the future, leading to a panic sell-off. The stock market experienced a rapid drop as the COVID-19 pandemic spread globally. 

Governments and central banks created stimulus measures to stabilize the market. As businesses reopened doors and brought back jobs, the stock market stabilized. 

Here We Go Again…

The stock market has been experiencing significant turmoil this summer. While there are many reasons for this, most experts blame a mix of several factors for market instability. 

1. Weak Economic Data: Recent economic reports have disappointed investors, particularly in the U.S. Once again, American job growth was weaker than expected. This has fueled concerns about a potential recession, leading to a market sell-off.
2. High Equity Valuations: Stock prices have been trading historically high, making the market vulnerable to negative news. When economic data didn’t meet expectations, it triggered a sharp decline as investors rushed to sell overvalued stocks.
3. Tight Monetary Policy: The Federal Reserve has raised interest rates to their highest levels since 2007. This has increased borrowing costs and put additional pressure on the economy and the stock market.
4. Geopolitical Tensions: Global geopolitical issues, including conflicts in the Middle East, have added to the market uncertainty. These tensions have also caused oil price volatility, further destabilizing the stock market.
5. Seasonal Volatility: August and September have always been volatile for the stock market, and this year has been no different. 

Now What? 

Your best way to keep your investments safe is to diversify and focus on your long-term goals. Keep up with market news, but don’t let normal fluctuations drive your investment decisions.  

If you’re unsure of your next move, don’t hesitate to call on the professionals. They can help you tailor investments for your unique financial situation.