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| | US financial markets had a day of Dow crash when Stocks had their worst day of trading since the Sept. 11, 2001, terrorist attacks Tuesday, causing the Dow crash more than 400 points on a worldwide tide of concern that the U.S. and Chinese economies are stumbling and that share prices have become overinflated.
The steepness of the stock market drop, as well as its global breadth, signaled a possible correction after a long period of stable and steadily rising stock markets that had not been shaken by such a volatile day of trading in several years.
The repercussions continued Wednesday in morning trading in Asia. Shares in Tokyo, Hong Kong, Australia, New Zealand, the Philippines and Indonesia all tumbled more than 3 percent. The region's biggest bourse, the Tokyo Stock Exchange, saw its Nikkei 225 stock index fall 644.85 points, or 3.56 percent, to 17,475.07 points.
It began Monday with a 9 percent slide in Chinese stocks, which came a day after investors sent Shanghai's benchmark index to a record high close, setting the tone for U.S. trading Tuesday. The Dow began the day falling sharply, and the decline accelerated throughout the course of the session before stocks took a huge plunge in late afternoon as computer-driven sell programs kicked in, and also as a computer glitch caused a delay in the recording of a large number of trades.
The Dow crash was about 546.20 points, or 4.3 percent, to 12,086.06 before recovering some ground in the last hour of trading to close down 416.02, or 3.29 percent, at 12,216.24, leaving it in negative territory for the year. Because the worst of the plunge took place after 2:30 p.m., the New York Stock Exchange trading limits, designed to halt such precipitous moves, were not activated.
The drop hit every sector across the market, and a total of $632 billion was lost in total in U.S. stocks on Tuesday, according to Standard & Poor's Corp. Riskier issues such as small-cap and technology stocks suffered some of the biggest declines, but big industrial companies, those that are often hurt the most in an economic downturn, also were pummeled, with raw materials producers among the hardest hit.
But analysts who have been expecting a pullback and Dow crash after a huge rally that began last October and sent the Dow to a series of record highs, were unfazed by Tuesday's drop.
A Commerce Department report that orders for durable goods in January dropped by the largest amount in three months exacerbated jitters about the direction of the U.S. economy, just a day after former Federal Reserve Chairman Alan Greenspan said the United States may be headed for a recession, but hopes Dow crash won't happen again in the near future.
Reasons for stock market crash in history:
Black Monday - in 1986, quick restoration economic increase in USA changed with very slow expansion, leading to “soft dip” and drop in inflation. By the beginning of 1987, market makers thought that they could avert the economical recession and economic situation of USA is on the threshold of boom. Stock exchanges started to grow at rapid pace by attaining peak in August.
Program trading, illiquidity, market overrating and market psychology are considered potential reasons for crash. These reasons were discussed during the explanation: why the collapse occurred on 19th October, why the market came crashing down so quickly and intensely and why the crisis shook not only USA.
Most popular explanation was usage of program trading. In program trading, computers are used for automatic completion of arbitration and hedging transactions. After the crash, many market makers cursed trading strategies, based on blunt course of the market, sale of securities during market dip.
According to the opinion of economist Richard Roll, international nature of crisis contradicts the attempts to substantiate the program trading, being reason for this catastrophe. At that time, program trading was spread mainly in USA and crisis started in Hong Kong and spread across to Europe and then shook the USA.
According to one more popular theory, reason for the catastrophe was non-coordination of monetary politics of G-7 countries. USA, wishing to maintain the dollar and restrict the inflation, made very quick changes.
Stock market collapse of 1929: Dip in the prices of shares, starting on Black Thursday 24 October 1929 and attained catastrophic magnitude on subsequent day’s i.e Black Monday (28 October) and Terrible Tuesday (29th October). This market crash is also famous as Wall Street crash and became the start of Great Depression.
Speculative boom preceded the crash in middle of 1920. During the boom, millions of Americans invested their resources in shares. Growing demand for the shares hiked their prices which attracted new investors, wishing to become rich through investments in shares. This closed circle lead to formation of economic bubble. In this case, many investors purchased shares in credit by borrowing required resources in banks. On Thursday, 24th October 1929, when the Industrial average of Dow Jones was at 381.17, bubble got punctured and panicky sale of shares started. To avoid the depreciation of their shares, investors sold more than 13 million securities on the same day.
In subsequent days, approximately 30 million shares were sold and prices collapsed by ruining millions of investors.
Banks, which financed the purchase of shares earlier through credit, were not in a position to clear the debts and declared bankrupt.
During this period, millions of people lost their resources in markets for existence and the enterprises were deprived of credit and closed down leading to increase in unemployment.
Stock market crash of 1929 rendered dramatic effect on and without, poor economic situation and served as most ponderable reason for Great Depression.
Crash in 1929 was a very good lesson for financial world and from that moment onwards, it has become a practice in stock exchanges to stop the trading if very quick dip in quotations was noticed. Thanks to the practice, consequences of market crash in 1987 (Black Monday) were significantly more bearable in comparison with 1929 crash. |
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Tuesday 