STOCK MARKET CRASHES

STOCK MARKET CRASHES WHAT CRASHES MEAN FOR THE UNITED STATES MOVING FORWARD

Declining economy in a stock market crash

What is a stock market?

As the root of our modern national economic system, the stock market essentially allows investors to buy and sell investments and stocks, which are shares of ownership in private companies.

The market serves as an essential role of U.S. economy, and with 55% of Americans invested in stock, individuals are largely dependent on the success of their shares.

“The market is similar to a farmers' market where you’d barter and trade certain objects. Some objects are more in need than others so they’re more expensive. You could think of it the same way, like shares of a company,” financial analyst Dmitry Simakov said.

What does it mean when the market crashes?

According to The Balance, a stock market crash is a dramatic decline of stock prices across a large portion of the market.

"A stock market crash is when a market index drops severely in a day, or a few days, of trading. The indexes are the Dow Jones Industrial Average, the Standard & Poor's 500, and the NASDAQ, Kimberly Amadeo wrote in an article for The Balance.

Although stock market crashes may shock the public, they are natural parts of the market cycle.

Despite this, market crashes can instill fear within people, as for investors, business owners, and individual consumers, the social and economic consequences can be devastating. While stock market crashes place a significant limit on the growth of corporations, they also create a drop in demand and revenue.

“The drop is mostly driven by fear right now. This fear causes us to spend less, travel less, and generally limit how we do our day to day business,” Simakov said.

With an increasingly contracting economy, a bear market is not a rare occurrence with stock market crashes.

“A bear market is defined as a period in which the major stock indexes drop by 20% or more from a recent high point and remain that low for at least a few months,” Avie Schneider wrote in an article for NPR.

According to NPR, the possibility of a bear market territory was brought into question after President Donald Trump's recent travel ban in attempt to prevent the spread of coronavirus (COVID-19).

Past stock crashes: trends in market failures

The Stock Exchange Crash of 1873

In Vienna of May 1873, the National Bank was unable to aid an economic crises triggered by uncontrolled speculation.

Shares rapidly fell as panic-selling ensued, halting the economic growth of the monarchy and leaving a lasting impact on the social and economic conditions of Europe.

The Wall Street Crash of 1929

The crash of Black Tuesday saw the collapse of share prices on the New York Stock Exchange.

This crisis remains the biggest crash in financial market history, signaling the Great Depression that utterly devastated the United States economy.

Black Monday 1987

Global stock markets suffered their worst day in history as the Dow Jones Industrial Average was down the most percentage in history.

Black Monday is regarded as the first modern economic financial system crash.

The 2008 Financial Crisis

The severe, worldwide economic crisis resulted from Wall Street banks’ risky trading practices.

As housing prices plunged and the global economy was wounded, it is considered to have been the most serious financial crisis since the Great Depression.

Sources

Ahmad Ardity/Stockmarket/Wikimedia Commons/Creative Commons CC0 1.0; Stock Market Graph/Pixnio/Public Domain CCO/Stock Exchange Bull Bear/Pixnio/Public Domain CC0; C.T. Dazey/The War of Wealth by C.T. Dazey, Broadway poster, 1895/Flickr/CC-BY-2.0; American union bank/Wikimedia Commons/Public Domain; Roger Hsu/Wall Street/Flickr/CC-BY-SA 2.0; Filipe Menegaz/World Financial Crises/Wikimedia Commons/CC-BY-SA 3.0

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