There have been a number of high profile stock market crashes over the years often resulting in huge losses for both individual investors and businesses. Although there is no specific number that determines when a stock market crashes, a crash occurs when there is a significant decline in the share prices. Usually it becomes a crash when one of the major stock market indexes loses over 10% of its value. Most of the major stock market crashes are preceded by a long bull market and they often result in panic-selling by investors attempted to liquidate their stocks to avoid further losses.
The stock market fluctuates daily, but on some occasions the crashes can be seismic and cause long lasting effects. Here we take a look at 10 of the biggest stock market crashes in history.
1. The 1673 Tulip Craze
In 1593 tulips were first brought to The Netherlands from Turkey and quickly became widely sought after. After some time, tulips contracted a non-fatal tulip-specific mosaic virus, known as the ‘Tulip breaking virus’, which started giving the petals multicolour effects of flame-like streaks. The colour patterns came in a wide variety, which made the already popular flower even more exotic and unique. Tulips, which were already selling at a premium, grew more and more in popularity and attracted more and more bulb buyers. Prices, especially for bulbs with the virus, rose steadily and soon Dutch people began trading their land, life savings and any other assets they could liquidate to get their hands on more tulip bulbs. The craze got to a stage where the originally overpriced tulips saw a 20 fold increase in value in one month.
The 1673 Tulip Mania is now known as the first recorded economic bubble. And as it goes in many speculative bubbles, some people decided to sell and crystallise their profits which resulted in a domino effect of lower and lower prices. Everyone was trying to sell their bulbs, but no one was interested in buying them anymore. The prices were progressively plummeting and everyone was selling despite the losses. The Dutch Government tried to step in and offered to honour contracts at 10% of the face value, which only resulted in the market diving even lower. No one emerged undamaged from the crash and even the people who got out early were impacted by the depression that followed the Tulip Craze.
Tulip Mania; Image credits: Krause & Johansen
2. The South Sea Bubble 1711
Another speculation-fuelled fever occurred in Europe a few decades after the Tulip Mania – this time in the British Empire. The bubble centred around the fortunes of the South Sea Company, whose purpose was to supply 4,800 slaves per year for 30 years to the Spanish plantations in Central and Southern America. Britain had secured the rights to provide Spanish America with slaves at the Treaty of Utrecht in 1713 and the South Sea Company paid the British Government £9,500,000 for the contract, assuming that it could open the door to trading with South America and that the profits from slave trading would be huge.
This was met with excitement from investors and resulted in an impressive boom in South Sea stock – the company’s shares rose from 128 1/2 in January 1720 to over 1,000 in August. However, by September the market had crumbled and by December shares were down to 124. And the reason behind the bubble burst? Speculators paid inflated prices for the stock, which eventually led to South Sea’s dramatic collapse. The economy was damaged and a large number of investors were completely ruined, but a complete crash was avoided due to the British Empire’s prominent economic position and the government’s successful attempts to stabilise the financial industry.
Commentary on the financial disaster of the "South Sea Bubble"
3. The Stock Exchange Crash of 1873
The Vienna Stock Exchange Crash of May 1873, triggered by uncontrolled speculation, caused a massive fall in the value of shares and panic selling.
The National Bank was not able to step in and provide support because it didn’t have enough reserves available. The crash put an end to economic growth in the Monarchy, affected the wealth of bankers and some members of the imperial court and confidants of the Emperor, as well as the imperial family itself. It also led to a drop in the number of the Vienna World Exhibition visitors – a large world exposition that was held between May and October 1873 in the Austria-Hungarian capital.
Later on, the crash gradually affected the whole of Europe.
Black Friday on 9th May 1873 at the Vienna Stock Exchange
4. The Wall Street Crash of 1929
On 29th October 1929, now known as Black Tuesday, share prices on the New York Stock Exchange collapsed - an event that was not the sole cause of the Great Depression in the 1930s, but something that definitely contributed to it, accelerating the global economic collapse that followed after the historic day.
During the 1920s, The US stock market saw rapid expansion, which reached its peak in August 1929 after a lot of speculation. By that time, production had declined and unemployment had risen, which had left stocks in great excess of their real value. On top of this, wages were low, agriculture was struggling and there was proliferation of debt, as well as an excess of large bank loans that couldn’t be liquidated.
In September and early October, stock prices began to slowly drop. On 21st October panic selling began and culminated on 24th, 28th and the fatal 29th October, when stock prices fully collapsed and a record of 16,410,030 shares were traded on NYSE in one day. Financial giants such as William C. Durant and members of the Rockefeller family attempted to stabilise the market by buying large quantities of stocks to demonstrate their confidence in the market, but this didn’t stop the rapid decrease in prices. Because the stock tickers couldn’t handle the mammoth volume of trading, they didn’t stop running until about 7:45 pm. During the day, the market had lost $14 billion. The crash remains to this day the biggest and most significant crash in financial market history, signalling the start of the 12-year Great Depression that affected the Western world.
17th July 2014 Washington DC, USA - A detail from one of the statue groups at the Franklin Delano Roosevelt Memorial that portrays the depth of the Great Depression
5. Black Monday 1987
On 19th October 1987, stock markets around the world suffered one of their worst days in history, known today as Black Monday. Following a long-running rally, the crash began in Asia, intensified in London and culminated with the Dow Jones Industrial Average down a 22.6% for the day – the worst day in the Dow’ history, in percentage terms. Black Monday is remembered as the first crash of the modern financial system because it was exacerbated by new-fangled computerised trading.
The theories behind the reasons for the crash vary from a slowdown in the US economy, a drop in oil prices and escalating tensions between the US and Iran.
By the end of the month, stock markets had dropped in Hong Kong (45.5%), Australia (41.8%), Spain (31%), the United Kingdom (26.45%), the United States (22.68%) and Canada (22.5%). Unlike the 1929 market crash however, Black Monday didn’t result in an economic recession.
Following a long-running rally, the crash began in Asia, intensified in London and culminated with the Dow Jones Industrial Average down a 22.6% for the day – the worst day in the Dow’ history, in percentage terms.
6. The 1998 Asian Crash
The Asian crisis of 1998 hit a number of emerging economies in Asia, but also countries such as Russia and Brazil, having an overall impact on the global economy. The Asian crisis began in Thailand in 1997 when foreign investors lost confidence and were concerned that the country’s debt was increasing too rapidly.
The crisis in Thailand gradually spread to other countries in Asia, with Indonesia, South Korea, Hong Kong, Laos, Malaysia and the Philippines being affected the most. The loss of confidence affected those countries’ currencies – in the first six months, the Indonesian rupiah’s value was down by 80%, the Thai baht – by over 50%, the South Korean won – by nearly 50% and the Malaysian ringgit – by 45%. In the 12 months of the crisis, the economies that were most affected saw a drop in capital inflows of more than $100 billion.
7. The Dotcom Bubble Burst
In the second half of the 1990s, the commercialisation of the Internet excited and inspired many business ideas and hopes for the future of online commerce. More and more internet-based companies (‘dotcoms’) were launched and investors assumed that every company that operates online is going to one day become very profitable. Which unfortunately wasn’t the case – even businesses that were successful were extremely overvalued. As long as a company had the ‘.com’ suffix after its name, venture capitalists would recklessly invest in it, fully failing to consider traditional fundamentals. The bubble that formed was fuelled by overconfidence in the market, speculation, cheap money and easy capital.
On 10th March 2000, the NASDAQ index peaked at 5,048.62. Despite the market’s peak however, a few big high-tech companies, such as Dell and Cisco, placed huge sell orders on their stocks, which triggered panic selling among investors. The stock market lost 10% of its value, investment capital began to melt away, and many dotcom companies went out of business in the next few weeks. Within a few months, even internet companies that had reached market capitalisation in the hundreds of millions of dollars became worthless. By 2002, the Dotcom crash cost investors a whopping $5 trillion.
As long as a company had the ‘.com’ suffix after its name, venture capitalists would recklessly invest in it, fully failing to consider traditional fundamentals.
8. The 2008 Financial Crisis
This market crash needs no introduction - we all must remember how ten years ago Wall Street banks’ high-risk trading practices nearly resulted in a collapse of the US economy. Considered to be the worst economic disaster since the Great Depression, the 2008 global financial crisis was fed by deregulation in the financial industry which allowed banks to engage in hedge fund trading with derivatives. To support the profitable sale of these derivatives, banks then demanded more mortgages and created interest-only loans that subprime borrowers were able to afford. As the interest rates on these new mortgages reset, the Federal Reserve upped the fed funds rates. Supply outplaced demand and housing prices began to decrease, which made things difficult for homeowners who couldn’t meet their mortgage loan obligations, but also couldn’t sell their house. The derivatives plummeted in value and banks stopped lending to each other.
Lehman Brothers filed for bankruptcy on 15th September 2008. Merrill Lynch, AIG, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo Real Estate, and Alliance & Leicester which were all expected to follow however were saved by bailouts paid by national governments. Despite this, stock markets across the globe were falling.
And we all remember what followed… The bursting of the US housing bubble and Lehman Brothers’ collapse nearly crushed the world’s financial system and resulted in a damaged house market, business failures and a wounded global economy.
Don’t miss our articles on the impact of the Lehman Brothers’ collapse:
https://www.finance-monthly.com/2018/09/lehman-brothers-lessons-have-we-learned-anything/
9. The Flash Crash 2010
On 6th May 2010, the US stock market underwent a crash that lasted approximately 36 minutes, but managed to wipe billions of dollars off the share prices of big US companies. The decrease occurred at a speed never seen before, but ended up having a very minimal impact on the American economy.
With the opening of the market on 6th May 2010, there were general market concerns related to the Greek debt crisis and the UK general election. This led to the beginning of the flash crash at 2:30pm - Dow Jones had declined by more than 300 points, while the S&P 500 and NASDAQ composite were affected too. In the next five minutes, Dow Jones had dropped a further 600 points, reaching a loss of nearly 1000 points for the day. By 3:07pm things were looking better and the market had regained much of the decrease and only closed at 3% lower than it opened. The potential reasons behind the crash vary from ‘fat-fingered’ trading (a keyboard error in technical trading) to an illegal cyberattack. However, a joint report by the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) stated that the extreme price movement could have been caused by the combination of prevailing market conditions and the large automated sell order.
As some securities lost 99% of their value in a few minutes, this was one of the most impressive stock market crashes in modern history.
10. 2015–16 Chinese Market Crash
After a few years of being viewed in an increasingly favourable light, China’s Stock Market burst on 12th June 2015 and fell again on 27th July and 24th August 2015. Despite the Chinese Government attempt to stabilise the market, additional drops occurred on 4th and 7th January and 14th June 2016. Chaotic panic selling in July 2015 wiped more than $3 trillion off the value of mainland shares in just three weeks, as fear of complete market seizure and systemic financial risks grew across the country.
Surprise devaluation of the Chinese yuan on 11th August and a weakening outlook for Chinese growth are believed to have been the causes for the crash that also put pressure on other emerging economies.
Sources: https://www.investopedia.com/features/crashes/crashes2.asp https://www.britannica.com/event/South-Sea-Bubble http://www.habsburger.net/en/chapter/crisis-highest-circles-economic-boom-and-stock-exchange-crash https://www.citeco.fr/10000-years-history-economics/industrial-revolutions/crash-of-the-vienna-stock-exchange-in-austria https://www.history.com/topics/great-depression/1929-stock-market-crash https://www.thirteen.org/wnet/newyork/ https://www.britannica.com/event/Asian-financial-crisis https://qz.com/1106440/black-monday-1987-the-stock-market-crash-that-was-so-bad-hospital-admissions-spiked/ https://www.investopedia.com/terms/d/dotcom-bubble.asp https://www.thebalance.com/what-caused-2008-global-financial-crisis-3306176 https://www.thestreet.com/markets/history-of-stock-market-crashes-14702941 https://www.sec.gov/news/studies/2010/marketevents-report.pdf https://www.economist.com/news/2015/08/24/the-causes-and-consequences-of-chinas-market-crash
It’s been exactly a year since Harvey Weinstein was first accused of sexual harassment and assault. Since then, more than 50 women have made allegations against the Hollywood mogul, whilst the #MeToo movement has rapidly spread around the world with a shocking number of powerful men across a number of industries being pushed out of jobs and publicly accused of sexual misconduct. But despite the widespread popularity of the movement, it seems like the finance industry has been, to an extent, immune to claims of sexual harassment. Of course there have been cases that have been reported in the past twelve months, with Merrill Lynch employee, Jean McCrave Baxter, suing the firm over sexual harassment and discrimination being one of the most recent examples. Yet, many women in finance who have been harassed are reluctant to coming forward to talk about the abuse and most of the very few individuals who have spoken up openly about it have chosen to remain anonymous.
What’s hiding behind the silence?
We all must remember Sallie Krawcheck’s story about a man she met at a conference organised by Sanford C. Bernstein & Co., where she was Research Director, who invited her to his hotel whilst “sticking out his tongue and wiggling it at [her]”. After moving to Citigroup in 2002, Mrs. Krawcheck found out that her harasser was about to get a job at the bank and told its CEO about the experience she’s had with him. After the Chief Executive’s suggestion that maybe this was all a misunderstanding, she threatened to quit, which resulted in Citigroup agreeing not to hire him. Krawcheck said that she’s decided not to name her harasser only because she got her revenge. “He wasn't in a position of power, and I got him back later", she says.
The first female trader to be invited into the partnership of Goldman Sachs, Jacki Zehner, on the other hand is withholding the name of her colleague who pulled her out of a taxi as he wanted to take her into his home after drinks because she’s too afraid. She also adds that she would never forgive herself for not reporting him.
Earlier this year, WealthManagement.com reported on the case of a personal banker who was working for a major firm in California and was responsible for 20% of the company’s clients. One of them, a Chief Financial Officer, used to ‘aggressively flirt with her’. “He would say: ‘When are you going to take me to the opera? When are you going to take me to a sporting event?’; I would say: ‘I will take you any time you want to go. You would take a date, and I would bring my husband.’ And he says: ‘No, I want this to be just you.’” On another occasion, she was sat at her desk when another client showed up. “This guy happened to walk in, and in the midst of me having a conversation with these other people, he turned my chair around, kissed me, and laughed”, she explains. “I got up, and I went into the manager. He responded: ‘I expect you do whatever it takes to keep that client.’ So I quit. I walked out the door. It was pretty traumatic because I worked hard to get to that position.”
In January 2018, Bloomberg interviewed 20 women who used to or still work on Wall Street and yet again, asked not to be identified. And although #MeToo has triggered some changes, these 20 women say that throughout their career, they have been ‘grabbed, kissed out of the blue, humiliated, and propositioned by colleagues and bosses but have stayed quiet because of cultural and financial forces that are particularly strong in banking’. These women worry that they have a lot to lose by reporting it and no certainty about what they could gain - all on top of legal agreements that ‘muzzle’ them.
Some may argue that the finance industry has already had its #MeToo moment in the mid-90s when a group of female employees from California to New York sued the giant brokerage firm Smith Barney Inc. for alleged sexual harassment, hostile work environment and job discrimination. The lawsuit prompted a number of other companies to put harassment procedures and mechanisms in place. And although we’ve reached a point where all major financial (and not only) institutions have policies for reporting harassment in place, a WealthManagement.com survey showed that 66% of the women who have been harassed or witnessed harassment did not use the protocols in place to report the incident. The list of reasons included ‘fear of retaliation and ostracism within the office, the fact that the offender was the victim’s manager or a belief that the complaint would not be taken seriously’. One respondent remembers the one time she informally addressed an instance of sexual harassment that she’s been subject to and the response she got from her management - laughter and an explanation that this was ‘the nature of the beast’.
A lot can be said about the culture within finance, or ‘the nature of the beast’. On a global scale, the financial sector suggests a culture where it’s hard for women to thrive. Long hours, the travel and the pyramid-like structure that includes a lot of junior women, but disproportionately fewer and fewer of them as you get toward the top. On top of this, financial firms and institutions are built on relationships, they value discretion, demand sacrifice and fixate on reputation. The culture in their firms could be so intimidating that some of the women that Bloomberg interviewed for example are scared that bringing a sexual harassment claim to light could permanently alienate bosses, colleagues, and even rivals. Many in finance tend to attribute it to an industry norm, believing that this is the way things get done around here and victims need to develop a thick skin and get on with their life.
Alan Moore, Co-founder of XY Planning Network, a support network for advisers looking to serve next generation clients says: “There is a generation of men that simply don’t recognise harassment when they do it or when they see it. Women have been told time and time again, either verbally or through inaction, that harassment isn’t a big deal. You should just put on thicker skin and get over it. And so we haven’t given women a way to actually end the harassment without basically having to quit their job and move on.”
The unique nature of the culture makes removing oneself from the situation and moving to another company seem like the easier option – you won’t have to talk about it, you won’t have to face judgement and you won’t have to feel embarrassed. Even Sallie Krawcheck and Jacki Zehner, some of the very few women in finance who have had the bravery (and maybe the strong reputation) to open up about the traumatic experiences they have been victims to, have chosen not to ‘name and shame’ their harassers.
“You can have protocols in place that look great in theory, but if nobody is ever actually disciplined for having harassed somebody, then those protocols start to look like your complaint goes into a black hole and you never know what has happened other than you start to fear that you’ll be retaliated against”, says Eric Bachman, a Principal with Zuckerman Law and the Chair of their discrimination and retaliation practices.
“It’s really necessary for [firms] to be out in front of this and treat this like a real business problem that they need to be figuring out the solution to and giving it the appropriate prioritisation within the organisation”, Bachman continues. “And until that happens, you’re going to keep seeing sexual harassment problems in this industry.”
Arguing that every single woman working in finance has been harassed without addressing it was never my intention. I’m confident that there are countless women working in the financial services sector, who have reported the incident or whose gender has never sparked any problems – some even use it to their advantage. However, although the situation is improving, I believe the industry still has a long way to go – more women should take inspiration from women’s voices in other industries and more management teams should persuade female employees that making a complaint is not going to adversely impact their careers.
Sources:
https://money.cnn.com/2017/11/01/pf/naming-sexual-harassers/index.html
http://www.jackizehner.com/2017/10/19/metoo/
https://www.wealthmanagement.com/industry/nature-beast
https://www.bloomberg.com/news/articles/2018-01-11/why-wall-street-hasn-t-had-its-metoo-moment-yet
With the 10th anniversary of the Lehman Brothers’ shocking and unprecedented bankruptcy this month, Katina Hristova looks back at the impact the collapse has had and the things that have changed over the last decade.
Saturday 15 September 2018 marked ten years since the US investment bank Lehman Brothers collapsed, sending shockwaves across the financial world, prompting a fall in the Dow Jones and FTSE 100 of 4% and sending global markets into meltdown. It still ranks as the largest bankruptcy in US history. Economists compare the stock market crash to the dotcom bubble and the shock of Black Friday 1987. The fall of Lehman Brothers was a pivotal moment in the global financial crisis that followed. And even though it’s been an entire decade since that dark day when it looked like the whole financial system was at risk, the aftershocks of the financial crisis of 2008 are still rumbling ten years later - economic activity in most of the 24 countries that ended up falling victim to banking crises has still not returned to trend. The 10th anniversary of the Wall Street titan’s collapse provides us with an opportunity to summarise the response to the crisis over the past decade and delve into what has changed and what still needs to.
As we all remember, Lehman Brothers’ fall triggered a broader run on the financial system, leading to a systematic crisis. A study from the Federal Reserve Bank of San Francisco has estimated that the average American will lose $70,000 in lifetime income due to the crisis. Christine Lagarde writes on the IMF blog that to this day, governments continue to ‘feel the pinch’, as public debt in advanced economies has risen by more than 30 percentage points of GDP – ‘partly due to economic weakness, partly due to efforts to stimulate the economy, and partly due to bailing out failing banks’.
Afraid of the increase in systemic risk, policymakers responded to the crisis through quantitative easing and lowering interest rates. On the one hand, quantitative easing’s impact has seen an increase in asset prices, which has ultimately resulted in the continuation of the old adage, the rich get richer and the poor get poorer. The result of Lehman’s shocking failure was the establishment of a pattern of bailouts for the wealthy propped up by austerity for the masses, leading to socio-economic upheavals on a scale not seen for decades. As Ghulam Sorwar, Professor in Finance at the University of Salford Business School points out, growth has been modest and salaries have not kept with inflation, so put simply, despite almost full employment, the majority of us, the ordinary people, are worse off ten years after the fall of Lehman Brothers.
Lowering interest rates on loans on the other hand meant that borrowing money became cheaper for both individuals and nations, with Argentina and Turkey’s struggles being the brightest examples of this move’s consequences. Turkey’s Lira has recently collapsed by almost 50%, which has resulted in currency outflow and a number of cancelled projects, whilst Argentina keeps returning for more and more loans from IMF.
Discussing the things that we still struggle with, Christine Lagarde continues: “Too many banks, especially in Europe, remain weak. Bank capital should probably go up further. 'Too-big-to-fail' remains a problem as banks grow in size and complexity. There has still not been enough progress on how to resolve failing banks, especially across borders. A lot of the murkier activities are moving toward the shadow banking sector. On top of this, continued financial innovation—including from high frequency trading and FinTech—adds to financial stability challenges. In addition, and perhaps most worryingly of all, policymakers are facing substantial pressure from industry to roll back post-crisis regulations.”
The Keynesian renaissance following that fateful September day, often credited for stabilising a fractured global economy on its knees, appears to have slowly ebbed away leaving a financial system that remains vulnerable: an entrenched battalion shoring up its position, waiting for the same directional waves of attack from a dormant enemy, all the while ignoring the movements on its flanks.
If you look more closely, the regulations that politicians and regulators have been working on since the crash are missing one important lesson that Lehman Brothers’ fall and the financial crisis should have taught us. Coming up with 50,000 new regulations to strengthen the financial services market and make banks safer is great, however, it seems that policymakers are still too consumed by the previous crash that they’re not doing anything to prepare for softening the blow of a potential new one. They have been spending a lot of time dealing with higher bank capital requirements instead of looking into protecting the financial services sector from the failure of an individual bank. Banks and businesses will always fail – this is how capitalism works and no one knows if there’ll come a time when we’ll manage to resolve this. Thus, we need to ensure that when another bank collapses, we’ll be more prepared for it. As Mark Littlewood, Director General of the Institute of Economic Affairs, suggests: “policymakers need to be putting in place a regulatory environment that means that when these inevitable bank failures occur, they can fail safely”.
In the future, we may witness the bankruptcy of another major financial institution, we may even witness another financial crisis – perhaps in a different form. However, we need to take as much as we can from Lehman Brothers’ collapse and not limit our actions to coming up with tens of thousands of new regulations targeted at the same problem. We shouldn’t allow for a single bank’s failure to lead us into another global crisis ever again.
Said markets present anticipated price developments daily, weekly, monthly and yearly, and when scouting for profits, bidding investors will act according to the market sentiment.
If the anticipated price development of a market’s stock is upwards, meaning the value of certain stock is rising or expected to rise, as a consequence of trends, single events, supply materials, current affairs or many other factors, the market sentiment is expressed as bullish. Vice versa, if the anticipated price development is on the downtrend, by any of the same reasons, the market sentiment is expressed as bearish.
It isn’t always as simple as this however. Market sentiment is also considered to be a contrarian indicator. For example, extremely bearish markets may subsequently display dramatic spikes – the turning point for this is often where the risky decision making appears.
Market sentiment, the overall expression of a certain market as bullish or bearish, is normally determined by a variety of technical and statistical methods that factor in the comparisons of advancing & declining stocks as well as new lows & new highs in the market. One of these is known as the Relative Strength Index (RSI); it relates the number of assets bought to assets sold, indicating whether capital is flowing in or out of the market in question. Normally, as a market follows sentiment either way, the flock follows, meaning the overall movement of the market’s stock follows the market sentiment directly. To quote a popular Wall Street phrase: “all boats float or sink with the tide.” The more investors buy, the more investors buy; it’s usually exponential development.
This of course could happen indefinitely, if it weren’t for the fact that as stock trading volumes rise, as does the price. Eventually the price hits a market high and the potential for profits is minimized. At this point the fall to a bearish market usually comes to fruition. On the other hand, as trading volumes fall, prices go down, to the point where eventually the price is so low it would be foolish not to buy, therefore turning the market on its head.
As obvious as it may seem, the words bullish and bearish reflect exactly what you would expect and are not simply paraphrases. An optimistic investor, happy to buy, buy, buy as the market sentiment is bullish, is considered a bull; aggressive, optimistic and almost reckless, striking upwards with its horns. Equally a bearish investor is considered a bear because he or she does not trade without utmost consideration, he or she is pessimistic towards trading expectations and believes prices will fall, or fall further than they already have. The bear therefore decides to sell, sell, sell, and pushes the prices down; as a bear that strikes its paws to the ground.
Make sure you check one of our top read features ‘The Top 10 Greatest Stock Market Trades Ever’.
Thursday's plunge knocked roughly $120 billion in market value off the tech stock and is dragging the rest of the sector lower. Before Thursday, Facebook's largest single-day loss came in July 2012 when it shed 11%. The company missed projections on key metrics after struggling with data leaks and fake news scandals.
The euphoric rally of US stock markets is sustainable through 2018, forecasts a leading global analyst at deVere Group.
Tom Elliot, deVere Group’s International Investment Strategist, is speaking after America’s leading market indices - the Dow, S&P, and Nasdaq - finished at a record high following the end of the government shutdown.
Mr Elliott comments: “There’s been almost continual chatter in recent weeks on Wall Street and beyond about the current melt-up, before a forthcoming meltdown. It supposes that we’re experiencing the last euphoric rally in an asset class bull market, before the collapse.
“Whilst, it’s true that Wall Street is the most overvalued of the major stock markets, I am sceptical about an imminent collapse. Where would it be coming from? The only real risk is that bank account rates or bond yields rise sufficiently to persuade investors to sell shares and invest in risk-free assets.
“But with the inflation so low and the Fed being so cautious, I don’t see that happening any time soon. Another trigger for a sell-off might be a US recession. But again, no evidence of one around the corner.”
He continues: “US stock markets are likely to be supported by continuing strong corporate earnings growth, limiting any pull-back in share prices. The weak dollar boosts export earnings, while strong consumer confidence supports domestic-focused sectors.
“Tax cuts will be a net benefit to US corporate earnings, but the impact of changes to the tax code on individual sectors is as yet unpredictable. Fourth quarter earnings statements and outlook comments being reported shortly will hopefully offer clues.”
Mr Elliott concludes: “Against this backdrop, I believe that the current rally is sustainable through 2018, with the worst scenario perhaps being a strong early part of the year, followed by consolidation -with minimal gains- over the rest of the year.”
(Source: deVere Group)
Today marks the 30th anniversary of the day when the financial bubble, that resulted in the Dow Jones reaching a record peak of 2722 in August, burst in spectacular fashion.
Following a fraught Friday on the New York Stock Exchange where the DJIA dropped sharply, the opening bell on 19th October started a selling onslaught and panic on the floor that hasn't been seen since. We take a look back at Black Monday 1987 in numbers.
Black Monday In Numbers
"It was a frightening week, more frightening than any week in '08" - Jim Chanos
19th October 1987 – The date of Black Monday.
9am – The sounding of the opening bell that began the selling that almost crashed the entire American financial system.
250 points – Points drop on the Dow Jones by 12:30pm.
508.32 points – Number the DJIA fell on 19th October 1987, it was at the time the largest drop Wall Street had seen.
4x – The amount the points drop on 19th October was bigger than the previous record.
22.76% - One Day Percentage Loss on the Dow Jones Industrial Average (DJIA). A record that still stands today.
Dow Jones Industrial Average from January - December 1987
$500 Billion – Amount of capital lost on 19th October 1987.
33% - Drop in S&P Futures on Black Monday.
604.33 million shares – Volume of shares on the New York Stock Exchange. A record at the time.
$1 Billion dollars – Value of Sell Orders reached by 10am on 19th October.
112 million – Shares lost by the Designated Order Turnaround System at NYSE as the computers buckled under the weight of sell orders.
648 - Days it took for the markets to recover.
$18.8 Billion - Market Value Lost By IBM on Black Monday. It was valued at around $62 Billion before Monday 19th October.
"Wall Street was uniformly unprepared for this magnitude of drop" - Paul Tudor Jones, October 19th 1987
23pc - Drop on the FTSE 100 on Black Monday and Tuesday combined. The biggest ever in history and a figure that has never been seen since.
60% - Percentage drop of the New Zealand Stock Market after Black Monday.
$6.7 Billion - Total in paper losses on AT&T Shares.
30.9% - Amount of American Express shares were reduced by during the trading day.
Traders react after one of the worst days the New York Stock Exchange has ever seen.
33 – Age of Paul Tudor Jones in 1987, when he and his colleague Peter Borish foresaw Black Monday.
$100 Million - Amount Paul Tudor Jones made by shorting the market and ensured his legacy on Wall Street.
$1 Billion – Amount Sam Walton, reportedly America’s Wealthiest Man lost on the day. ''It was paper when we started, and it's paper afterward.'' He said after the days trading.
$500 Million - Reported figure that Walton's Wal-Mart company value lost on Black Monday.
40% - Reduction in restaurant bookings and turnover in local businesses used by Wall Street Traders on 19th October.
$500 Million -Reported value of holdings in Allegis, Holiday, Bally and various other companies sold by future President Donald Trump in August that ensured he avoided any losses and became one of the few to make money on Black Monday.
16 hours – The time it took after the Dow Jones Closed on Black Monday for the US Federal Reserve to release a statement saying that it “affirmed today its readiness to serve as a source of liquidity to support the economic and financial system”
10 – Number of the largest banks who extended credit to traders following the Federal Reserve statement.
Traders stand bewildered after the New York Stock Exchange closed on Black Monday
2,078 – Stocks Traded on the board at the NYSE on Black Monday.
2,038 - Stocks Traded on the board at the NYSE that made a loss.
$470 – Amount Gold price per ounce increased (from $15.50) as one of the only performing stocks.
$1 Trillion – Total loss of wealth by the close of play.
$10,000 – Cash withdrawn late on 19th October from his Bank by Allan Rogers, head of government bond trading at Banker’s Trust, and hid in his loft because he was so scared the whole banking system was going down.
7% - Percentage of stocks that didn’t even open the following morning.
126 points – Rise in DJIA in the opening minutes of Tuesday 20th trading following Federal Reserve stop-gap measures.
10:00am – The rally is over and the Dow Begins to plummet once more.
11:28am – Time the Chicago Mercantile Exchange ceases trading on the S&P contract.
The crash was splashed all over the world news following a devastating day for traders.
11:15am – Time on Tuesday 20th October traders and banks like Merrill Lynch, Goldman Sachs and Salomon requested John Phelan CEO of the NYSE perform a total shutdown due to lack of buyers.
285 – Price paid by Blair Hull on MMI Futures in Chicago sparking the rally that some say prevented a full blown crash.
62% - Amount made by Tudor Investment Corp. in October.
102.27 – Dow Jones Industrial Average gain on the day for Tuesday 20th October.
23000 - Number hit by the Dow Jones on October 18th 2017, almost 30 years on from Black Monday sparking fears another equity bubble may be about to burst.
Thanks to some quick responses from the Federal Reserve and a surprise market rally, the Dow Jones rallied enough to avoid a repeat of the Great Depression that had followed the Wall Street Crash of 1929 that bore many similarities to Black Monday in 1987.
The flash crash also led to several huge changes on Wall Street including a kill-switch on trading the S&P if it drops below 7% and an overhaul of the computer systems that had caused so many issues on that fateful day to ensure that the confusion and inability to trade would no longer be an issue. And while there have been monumental crashes on trading floors across the world, none seemed to repeat the speed and fear that occurred on the New York Stock Exchange on the 19th October 1987.
Rumour and conjecture abound in the financial world that lessons may in fact not have been learned, and that we may be in line for another Black Monday, especially given the DJIA topping the 23000 figure just today. Analysts remain nervous, citing an 8-year bull market and reports of a hugely over-inflated US stock market. One thing is for certain, no one at the New York Stock Exchange will want to see the markets offer up any sort of anniversary.
All Photos: Roger Hsu
Sources: Bloomberg, NY Times, Guardian, Reuters, Washington Post
Welcome to Finance Monthly's countdown of the Top 10 Greatest Trades that the trading floor has ever seen. We take a look at each trader, the audacious move they pulled off and where they are now.
Scroll through to see who tops our list.
10. The 1929 Short - Jesse Livermore
Result: $100 million profit
Livermore can be classed as one of the world’s pioneers in terms of shorting the market.
His first attempt was shorting the market by selling Union Pacific just before the San Francisco Earthquake of 1906. The pay-out was £250,000 but that was only the beginning. He followed that up by shorting the market again in 1907. As the stock market crashed Livermore took home $1 million for his efforts. Always looking for the next target, he concentrated on the wheat industry in 1925, with another successful short that earned him $3million.
Livermore was gaining a significant reputation but his real coup de grace would make his earlier trades pale in comparison. In the early autumn of 1929 the Dow Jones is up five-fold in the last 5 years and the euphoric atmosphere that pervaded the entire floor wasn’t shared by Livermore. As the money flowed in reaching an $8.5 billion high, it got to the point where the outstanding loans had exceeded the current amount of money in circulation. In September, as the stocks began to level out, Livermore gambled on his biggest short, which took place on that fateful day in 1929. Looking for a bigger haul and seeing what was coming, Livermore shorted the entire market. As the US Financial sector went into meltdown, Livermore earned himself $100million which in today’s market would equate to a $1.4 billion-dollar haul.
Incredibly, Livermore was declared bankrupt and was banned from the Chicago Board of Trade in 1934, just five years after his greatest success as an investor. No one knows exactly why and indeed how he lost all his money, but his reputation as one of the best ‘shorters’ still stands to this day.
Next: Shorting Black Monday
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Here Lee Wild, Head of Equity Strategy at Interactive Investor discusses corporate American investment ahead of third quarter reports.
Decent economic data has kept records tumbling on Wall Street, and who’s to say this run will unwind any time soon. Overnight, it’s talk Donald Trump could name Fed governor and market’s choice Jerome Powell as Fed chair Janet Yellen’s replacement that’s driving sentiment.
Winning streaks like this are always difficult for investors, as the head keeps asking how much higher? It requires calm and nerve to hold stocks in these situations, even more to continue buying.
Valuations are toppy in areas of the market both in the US and over here, but history is littered with examples where investors tried to call the market peak and failed. The experts who’ve predicted a crash for more than a year have been wrong, and investors who’d followed their lead will have missed out on substantial profits.
So, there are still plenty of good quality stocks to buy, which are growing profits, pay decent dividends, and have great prospects. That said, corporate America begins reporting third-quarter results in a couple of weeks, and the numbers had better be good, given the size of earnings beats already baked into stock prices.
It’s a big day for ex-dividends in London, among them the third of Next’s 45p special payouts and WPP’s generous interim, which lands highly-paid boss Martin Sorrell another huge windfall.
Even with the impact of ex-divs, the FTSE 100 has significant momentum right now and there’s a great chance it will break above 7,500 soon, putting it within 100 points of a new record. Miners and supermarkets are flavour of the month Thursday.
With little of interest coming out of the European Central Bank’s September policy meeting, it’ll be interesting to see if today’s minutes give any clues as to tapering plans or thoughts about how to handle the strong euro.
After that there’s a jumble of data out of the US, although the chance of any major upset is slim. Many traders could be tempted to keep their powder dry ahead of tomorrow’s US non-farm payrolls.
Following an internal review, SEC Chairman Jay Clayton revealed that the organisation had been the victim of “Malicious attacks”. The revelation came in a 4,000-word statement released on Wednesday and caused concerns among those on the trading floor.
The Securities and Exchange Commission is responsible for handling almost 1.7 million financial market disclosure documents a year through its EDGAR system, which was revealed as the source of the leak. The admission will be a source of embarrassment for the SEC, whose mission statement is to ‘protect investors’. Clayton’s statement confirmed that the leak was discovered and subsequently fixed in 2016. However, last month they discovered that the breach may have resulted in people being able to use the data acquired in the hack to illegally make profits on the stock market.
In addition to the cyber hack, Clayton’s statement also confirmed the use of private e-mails being used to transmit confidential data and that a number of SEC laptops that may contain confidential data are missing.
Wall Street has been suitably dismayed by the leak, given the potential risks that have been thrust upon it by the very organisation that is tasked with policing trades. However, the cyber breach will not come as a surprise to many within the government who have previously raised concerns about the SEC’s security systems in the past, including the Department of Homeland security who reportedly discovered five “critical” weaknesses in their system as recently as the start of 2017.
The US markets are already on edge, following the recent Equifax data breach which resulted in the leak of 143 million consumer records and is the subject of increased scrutiny and at least one Federal investigation.
In a bid to restore faith in the institution, Clayton has given his assurances that the SEC is taking cyber security seriously; he stated that: "The Commission will continue to prioritize its efforts to promote effective cybersecurity practices within the Commission itself and with respect to the markets and market participants it oversees," and that all steps are being taken to ensure there is not a repeat of a leak.
The move is a further indication that large financial companies and institutions are under increasing threat from cyber hacks. The SEC statement did not specify who was behind the breach, but recently countries such as Russia and North Korea have been linked to several high-profile hacks on large organisations.
Clayton and the SEC will need to ensure that it does not fall victim again if it is to rebuild its significantly damaged reputation on Wall Street.
The Wall Street Fraud Watchdog is now offering an unsurpassed due diligence service for EB-5 Visa applicants that is designed to ensure the investment is not a get rich quick scheme on the part of a regional center. At the same time, they are offering to work directly with the EB-5 Visa applicant to make certain they do not overpay for legal services associated with the EB-5 Visa program.
According to the Wall Street Fraud Watchdog: “It is very possible a regional center promoting an investment opportunity to a EB-5 Visa investment to a person from China, India, Korea, Eastern Europe, the Middle East or South/Central America will not be completely honest with the investor. In many instances, it is likely the regional center will embellish to make it sound like their investment is too good to be true, or it will produce a significant return on investment. Furthermore-why pay a $50,000 'finders-fee' or 'broker fee' when the investment and broker are all one in the same?
"If a EB-5 Visa applicant or applicants care about the quality of the investment they are being offered please call us anytime at 866-714-6466 and let's talk about the goal and or expectation for the investment. We do not work for a regional center nor are we captive to a law firm. Our due diligence service is designed to protect EB-5 Visa applicants and their money."
Note from the Wall Street Fraud Watchdog - "If the apartment building industry uses the word 'moderate' in a forecast for 2017, investors should pause."
For information about a recent settlement involving EB-5 Visa investor fraud please refer to a news article titled Raymond James Settles For $145.5 Million With Jay Peak Receiver.
The Wall Street Fraud Watchdog is concerned US based law firms with offices in China, Central America, the Middle East or in Europe could be more interested in legal fee generation for the law firm-than a high quality outcome for a EB-5 Visa applicant. At the same time, they are not confident all regional centers have a make sense investment product for the EB-5 Visa applicant. Their initiative is all about protecting the EB-5 Visa program applicant and their money with their affordable due diligence services. "Why settle for less?"
(Source: Wall Street Fraud Watchdog)
