The Biggest Drops In The History Of The Dow Jones Industrial Average
The Dow Jones Industrial Average (The Dow) is the 2nd oldest market index in the United States and has been around since 1885 – that is over 130+ years ago.
The Dow is a stock market index that tracks the 30 top companies trading on the NYSE and Nasdaq.
It is widely accepted amongst the majority of investors that the Dow is no longer an accurate representation of the American stock market, despite it being the most highly followed index.
This is because it is not weighted by market capitalization and only measures the top 30 companies.
The top 10 companies on the Dow Jones are widely known amongst worldwide consumers. Here’s a list of them:
- 3M
- American Express
- Apple Inc.
- Boeing
- Caterpillar Inc.
- Chevron
- Cisco
- Coca-Cola
- Dow Inc.
- ExxonMobil
Over the last 100 years, there have been countless stock market crashes which have plunged the value of The Dow by thousands of points, devaluing the companies in the process.
The largest drop since Black Monday happened this year on March 16. It had been over 33 years since the infamous day which occurred in 1987.
The leading cause being the fears regarding COVID-19 – it is safe to say the virus has had a detrimental impact on all markets across the globe.
Below we will explore the three biggest drops in The Dow since 1980, those being Black Monday 1987, the October 1997 mini-crash, and the most recent ‘COVID Crash’.
Black Monday, 1987
On the morning of Monday, October 19, 1987, nobody in Wall Street, or around the globe for that matter predicted that by the end of the day the Dow Jones would plunge by over 20%.
It was nearly double the drop that occurred during the great depression in 1929 which was only 12%.
How did it happen I hear you ask? Well, alarm bells were ringing for traders a few days before the crash. A series of unfortunate events led up to the decline.
Six days before Black Monday the Dow had a major decrease of just under 4%, dropping by another 2.5% the next day.
And on the Friday before Black Monday, the London Stock Exchange fell 5% due to the great storm of 1987, an abnormal weather event that killed over two dozen people in the UK.
Hong Kong, Asia, and Australia were the first major markets to be hit by the crash on Monday morning, with aftershocks rocking the markets in other smaller nations around the world.
As the United States and Europe woke up and the markets opened all hell broke loose.
By lunchtime in the U.S stocks were in freefall, brokers were inundated with calls from investors to sell their shares, companies were devalued and even went bankrupt – it was truly a catastrophe.
After the day the Dow had free fallen over 500 points (22%) and had made history as the biggest drop in the index since its inception.
October 27, 1997, Mini crash
The crash of the Dow in 1997 was caused by the economic crisis in Asia during that time, and whilst its impacts weren’t felt as heavily as Black Monday, the mini-crash still had a significant impact on the markets throughout the year.
Spectacularly, the markets ended positively for the calendar year of 1997.
The crash occurred in the early hours of the morning for the majority of the world as the Hang Seng Index fell by 6%, Asia’s most heavily invested market, the Japanese Nikkei 225 only recorded a 2% drop that day but it was too late.
The European markets, including London’s FTSE index, dropped by 2% as well. And when it was time for Wall St to open trading the markets continued to drop, leaving the Dow in free fall dropping over 550 points (7%)
It is safe to say that the US and Hong Kong were the most affected by the mini-crash but due to the size and varsity of their markets it had flow-on consequences across the world regarding other countries’ economic stability.
Thankfully the markets rebounded the following day with trading concluding in the U.S with the Dow in the green by 50 points. The market had restored over $350 billion of the $660 billion in market capitalization that had been decimated the day prior.
March 2020, COVID CRASH
The COVID-19 Pandemic has contributed to much of the decline seen in markets across the world over the past two months as it continues to rock the stability of the global economy.
On March 16 the Dow recorded its biggest point drop on record, falling over 2900 points in a single day (just over 12%).
It is important to acknowledge that the Dow had closed at record highs over the few days before the crash – but even that did not cause panic amongst the finance and investment sectors around the world.
In late February, the Dow had been close to reaching its 30,000-point threshold but did not ultimately reach it. The fall was closely linked to the panic in the markets around the world regarding the uncertainty of COVID-19.
Analysts of the market predicted that the inaction by the Trump administration had exacerbated panic in the international markets as the U.S cases and the death toll continued to rise.
As the pandemic continues to unfold there is a chance that we will see a steady flow of drops in the Dow over the following months.
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...
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It certainly isn't representative of most businesses. The market environment and government have helped these firms grow and prosper and they have been able to do this by cannibalizing other businesses, especially mid and small businesses. This has increased efficiencies and have cut costs. The stock market has prospered, however, the economy as a whole is still struggling.