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@ Henrik Ekenberg
2025-04-07 08:23:48Historical Rapid Declines in the S&P 500: Lessons from Major Market Crashes
The S&P 500 has experienced rapid declines of over 10% within short periods on several notable occasions, each linked to significant economic or geopolitical events. These instances underscore the market's vulnerability during times of crisis.
October 19-20, 1987 (Black Monday Crash)
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Drop:
On October 19, 1987, the S&P 500 plummeted approximately 20.47%, marking the largest single-day percentage decline in its history. The following day saw further losses, culminating in a two-day drop exceeding 25%. -
Context:
Factors such as program trading, portfolio insurance strategies, and widespread panic selling contributed to this unprecedented crash.
November 19-20, 2008 (Global Financial Crisis)
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Drop:
Amid the 2008 financial crisis, the S&P 500 declined roughly 10.8% over two days, reflecting the turmoil following the collapse of major financial institutions. -
Context:
The bankruptcy of Lehman Brothers and escalating fears of a global recession led to this significant market downturn.
March 11-12, 2020 (COVID-19 Pandemic Crash)
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Drop:
The rapid spread of COVID-19 and ensuing economic shutdowns triggered a two-day decline of approximately 12.2% in the S&P 500. By March 16, the total decline over four days exceeded 20%. -
Context:
The pandemic's uncertainty and global impact led to one of the fastest descents into bear market territory.
April 3-4, 2025 (Trade War-Induced Crash)
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Drop:
Recently, the S&P 500 experienced a sharp decline of 10.5% over two days, erasing approximately $5 trillion in market value. -
Context:
This downturn followed sweeping tariffs announced by President Donald Trump—a 10% baseline tariff on all imports, with higher rates on specific countries (e.g., China, the European Union). China's retaliatory tariffs intensified fears of a global trade war and a potential recession.
Observations
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Frequency:
Such rapid declines are rare, occurring approximately once every 10-20 years, typically during periods of extreme market stress. -
Catalysts:
Each event was precipitated by unique factors: - Technological trading mechanisms in 1987
- Financial sector instability in 2008
- A global health crisis in 2020
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Geopolitical trade tensions in 2025
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Market Resilience:
Despite these significant setbacks, markets have historically demonstrated resilience, often rebounding and reaching new highs in subsequent years.
Conclusion
Understanding these historical instances provides valuable insights into market dynamics and the potential impact of external shocks on financial systems. Recognizing the catalysts and observing market resilience over time can help investors navigate future downturns with a more informed perspective.
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