Australian (ASX) Stock Market Forum

Causes of market corrections/crashes

greggles

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I was reading about the 1987 stock market crash as I was never sure what the exact trigger was, and this was what I found:

  • Economic growth slowed in the first three quarters of 1987 and inflation was rising. Given the recent stagflation experience from the 1970s, investors were jittery.
  • The stock market had declined nearly 10% the week prior to Black Monday which added to investors’ fears.
  • Program trading using computers was relatively new and not sophisticated. The losses in the week prior to Black Monday and the losses at the open triggered computer program trading with little or no human intervention.

To be honest, I was expecting something more dramatic for an almost 22% fall in the DJIA in one day. Have financial markets gotten more resilient since then? We have two serious regional wars raging, skyrocketing inflation, interest rates getting hiked to more than 20 year highs, the commercial real estate business is in the toilet after a relatively recent global pandemic, the populace is mortgaged to the hilt and drowning in consumer debt, and we still can't manage a decent stock market crash.

What has happened to financial markets since 1987?
 
I was reading about the 1987 stock market crash as I was never sure what the exact trigger was, and this was what I found:



To be honest, I was expecting something more dramatic for an almost 22% fall in the DJIA in one day. Have financial markets gotten more resilient since then? We have two serious regional wars raging, skyrocketing inflation, interest rates getting hiked to more than 20 year highs, the commercial real estate business is in the toilet after a relatively recent global pandemic, the populace is mortgaged to the hilt and drowning in consumer debt, and we still can't manage a decent stock market crash.

What has happened to financial markets since 1987?

I think GG caused the 1987 crash.

After that, good question.

The Big Short (book) explains the last one pretty well.

Covid crash explains itself - outside market control.

69-79 wasn't flash. (imagine being an investor in the 70s? yikes.)

87-97 not that good.

07-23 almost even.

There's a basic principles for these cycles I think.

Something like: fear-greed-panic-desperation-war-peace-development-autocracy-democracy-socialism-capitalism-etc.

In the end, it seems to go up.

Screenshot 2023-10-25 at 11.42.01 pm.png
 
I was reading about the 1987 stock market crash as I was never sure what the exact trigger was, and this was what I found:



To be honest, I was expecting something more dramatic for an almost 22% fall in the DJIA in one day. Have financial markets gotten more resilient since then? We have two serious regional wars raging, skyrocketing inflation, interest rates getting hiked to more than 20 year highs, the commercial real estate business is in the toilet after a relatively recent global pandemic, the populace is mortgaged to the hilt and drowning in consumer debt, and we still can't manage a decent stock market crash.

What has happened to financial markets since 1987?
I think there are a lot more financial controls.
Government and big business are involved in ensuring liquidity remains. Also market are more flexible.
However I think its like an elastic band. it can break.
 
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