Market Volatility – a look at the last 90 years
Market volatility can be driven by a number of influencing factors. Often thought of as a simple numbers game, the share market can be heavily influenced by human emotion and market sentiment. When confidence is low, the share market may drop, caused by an increase in shares being sold. When market confidence increases, purchasing of shares increases, and values often rise.
It is important to understand market volatility has occurred since the market itself began. The point here is, downturns are more common than one may expect. Read our share market update here for an in-depth perspective. Learning how to budget, or save or invest wisely, are important skills to learn from our Golden Rules of Wealth Creation.
Let’s revisit the last 90 years of market crashes around the world.
The Wall Street Crash of 1929
A crash that would devastate the economy to such a state it lead to a great depression, the Wall Street Crash of 1929 is often spoken about to this day.
Lead by a speculative bubble in shares from high levels of market confidence, people around the world began to put money into stocks. The agricultural sector was struggling due to a fall in food prices and drought and debt was on the rise. Many who had taken out loans to buy shares had to sell when loan repayments were due. A large volume of sales (significant increase in supply and reduced demand) resulted in the crash.
Black Monday 1987
This stock market crash holds the title as the greatest one-day percentage decline in U.S stock market history with the Down Jones falling 22.6%.
The cause of this crash has been attributed to the computerized trading which allowed for stop loss orders. This would automatically sell a stock once it reached a certain price.
The Dot Com Bubble 2000
10 March 2000 marks the collapse of the share market caused by the technology bubble. Due to global excitement of emerging internet technology beginning in 1997, the bubble reached a peak where many tech stocks were greatly over-inflated.
A number of tech companies placed a huge sell order on their stocks, sparking panic and resulting in a downturn of 44.7%. Over 100 internet companies folded, resulting in 8000 job losses. If these values were over-inflated, was this a crash or correction?
The GFC 2008
This downturn was so significant, the name itself ‘Global Financial Crisis’ signifies the magnitude of the crash.
The GFC can be attributed to a number of factors including large financial institutions in the US handing out risky mortgages and many homeowners defaulting on these loans. The US housing market then experiences a significant decline. Effects were felt globally in the economy and world trade including a number of European banks defaulting.
What can we learn from this?
These are just a few of the larger, more well-known stock market crashes. There have been many smaller scale bubbles and crashes dating back to the early 17th century.
Market volatility may seem a scary concept or seen as an opportunity. Regardless of personal views, from observing historical ebbs and flows, it is important to remember to remain calm. Emotional decisions may lead to missed opportunities.
Want to learn more?
We have a number of informative articles and updates on market volatility:
- Thriving in a crisis: What does the recovery look like?
- Markets are Volatile
- Equity Market Update
- COVID-19 impact on markets and economy
Modoras remain committed to your financial confidence, if you have questions or are not sure what action to take during times of market volatility, please contact a Modoras Planner on 1300 888 803.
IMPORTANT INFORMATION: This blog has been prepared by Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licences (Number 233209). The information and opinions contained in this presentation is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. Any individual making any investment or borrowing decisions should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to borrow funds or purchase, sell or hold any particular investment. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of, credit contract entered into or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog may change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.