Friday the 13th mini-crash

Last updated

The Friday the 13th mini-crash was a stock market crash that occurred on Friday, October 13, 1989. The crash, referred to by some as "Black Friday", was apparently caused by a reaction to a news story of the breakdown of a $6.75 billion leveraged buyout deal for UAL Corporation, the parent company of United Airlines. When the UAL deal fell through, it helped trigger the collapse of the junk bond market. The deal unraveled because the Association of Flight Attendants pulled out of the deal when management, in negotiations over an Employee Stock Ownership Plan (ESOP) designed to fund the leveraged buyout, refused to agree to terms. [1]

Contents

The close

Moments after the UAL deal fell through, the indices began their plunge. When the closing bell rang, the Dow Jones Industrial Average had dropped 190.58 points, or 6.91 percent, to 2,569.26; the NASDAQ Composite had shed 14.90 points, or 3.09 percent, to 467.30; and the S&P 500 Index had fallen 21.74 points, or 6.12 percent, to 333.65. The Dow Jones Transportation Average fell 78.05 (5.26%) on the 13th, and fell another 102.04 (7.26%) on the 16th for a total decline of 12.13%. The major indices had closed at all-time highs as recently as Monday, October 9.

Survey

Many investors were left stunned. Since most market participants blame the UAL deal as the culprit, survey researcher William Feltus and Robert Shiller, the author of Irrational Exuberance , conducted a telephone survey of 101 market professionals in the business days following the crash, asking if they had heard about the UAL news before or after the crash: 36% surveyed said they had heard about it before the losses set in, and 53% said afterwards.

The market professionals also believed that the UAL story was just an attention-grabber, with traders trying to find a reason to sell: 50 percent believed that was the reason while 30 percent believed the news would reduce future takeovers. [2]

Aftermath

The crash is often pinpointed as the start of the early 1990s recession, but the surprisingly-low growth rates (almost 0 percent) during the summer months and the savings and loan crisis earlier in the year had triggered the crisis almost concurrently with the mini-crash, which, in turn, got blamed by the public (the memory of the 1987 crash still being fresh) as the true culprit of the recession.

See also

Related Research Articles

New York Stock Exchange American stock exchange

The New York Stock Exchange is an American stock exchange located at 11 Wall Street, Lower Manhattan, New York City, New York. It is by far the world's largest stock exchange by market capitalization of its listed companies at US$30.1 trillion as of February 2018. The average daily trading value was approximately US$169 billion in 2013. The NYSE trading floor is located at 11 Wall Street and is composed of 21 rooms used for the facilitation of trading. A fifth trading room, located at 30 Broad Street, was closed in February 2007. The main building and the 11 Wall Street building were designated National Historic Landmarks in 1978.

In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending. This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale natural or anthropogenic disaster. In the United States, it is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales". In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters.

Dow Jones Industrial Average Stock market index

The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow, is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States. Although it is one of the most commonly followed equity indices, many consider the Dow to be an inadequate representation of the overall U.S. stock market compared to broader market indices such as the S&P 500 Index or Russell 3000 because it only includes 30 large cap companies, is not weighted by market capitalization, and does not use a weighted arithmetic mean.

Stock market crash Sudden dramatic decline of stock prices across a significant cross-section of a stock market

A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculation and economic bubbles.

A market trend is a perceived tendency of financial markets to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames. Traders attempt to identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time.

Wall Street Crash of 1929 Stock market crash of 1929

The Wall Street Crash of 1929, also known as the Great Crash, was a major stock market crash that occurred in 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange collapsed.

Black Monday (1987) stock market crash of Monday, October 19, 1987

Black Monday on October 19, 1987 is the name commonly attached to a sudden, severe, and largely unexpected stock market crash that struck the global financial market system. In the United States, the Dow Jones Industrial Average (DJIA) fell exactly 508 points (22.6%), accompanied by crashes in the futures and options markets. This was one of the largest one-day percentage drops in the history of Dow Jones. Significant selling created steep price declines throughout the day, particularly during the last hour and a half of trading. The S&P 500 and Wilshire 5000 indices each declined more than 18 percent, and the S&P 500 futures contract declined 29 percent. Total trading volume was so large that the computer and communications systems in place at the time were overwhelmed, leaving orders unfilled for an hour or more. Large funds transfers were delayed for hours and the Fedwire and NYSE DOT systems shut down for extended periods of time, further compounding traders' confusion.

The October 27, 1997, mini-crash is a global stock market crash that was caused by an economic crisis in Asia, the "Asian contagion," or Tom Yum Goong crisis. The point loss that the Dow Jones Industrial Average suffered on this day currently ranks as the 18th biggest percentage loss since the Dow's creation in 1896. This crash is considered a "mini-crash" because the percentage loss was relatively small compared to some other notable crashes. After the crash, the markets still remained positive for 1997, but the "mini-crash" may be considered as the beginning of the end of the 1990s economic boom in the United States and Canada, as both consumer confidence and economic growth were mildly reduced during the winter of 1997–98, and when both returned to pre-October levels, they began to grow at an even slower pace than before the crash.

Private equity in the 1990s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks.

United States bear market of 2007–2009

The US bear market of 2007–2009 was a 17-month bear market that lasted from October 9, 2007 to March 9, 2009, during the financial crisis of 2007-2009. The S&P 500 lost approximately 50% of its value, but the duration of this bear market was just below average due to extraordinary interventions by governments and central banks to prop up the stock market.

2010 flash crash United States trillion-dollar stock market crash

The May 6, 2010 flash crash, also known as the crash of 2:45 or simply the flash crash, was a United States trillion-dollar stock market crash, which started at 2:32 p.m. EDT and lasted for approximately 36 minutes.

The Great Recession in the United States was a severe financial crisis combined with a deep recession. While the recession officially lasted from December 2007 to June 2009, it took many years for the economy to recover to pre-crisis levels of employment and output. This slow recovery was due in part to households and financial institutions paying off debts accumulated in the years preceding the crisis along with restrained government spending following initial stimulus efforts. It followed the bursting of the housing bubble, the housing market correction and subprime mortgage crisis.

In finance and investing, Black Monday 2011 refers to August 8, 2011, when US and global stock markets crashed following the Friday night credit rating downgrade by Standard and Poor's of the United States sovereign debt from AAA, or "risk free", to AA+. It was the first time in history the United States was downgraded. Moody's issued a report during morning trading which said their AAA rating of U.S. credit was in jeopardy, this after issuing a negative outlook in the previous week.

The Chinese stock market turbulence began with the popping of the stock market bubble on 12 June 2015 and ended in early February 2016. A third of the value of A-shares on the Shanghai Stock Exchange was lost within one month of the event. Major aftershocks occurred around 27 July and 24 August's "Black Monday". By 8–9 July 2015, the Shanghai stock market had fallen 30 percent over three weeks as 1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent further losses. Values of Chinese stock markets continued to drop despite efforts by the government to reduce the fall. After three stable weeks the Shanghai index fell again on 24 August by 8.48 percent, marking the largest fall since 2007.

The 2015–16 stock market selloff was the period of decline in the value of stock prices globally that occurred between June 2015 to June 2016. It included the 2015–16 Chinese stock market turbulence, in which the SSE Composite Index fell 43% in just over 2 months between June 2015 and August 2015, which culminated in the devaluation of the yuan. Investors sold shares globally as a result of slowing growth in the GDP of China, a fall in petroleum prices, the Greek debt default in June 2015, the effects of the end of quantitative easing in the United States in October 2014, a sharp rise in bond yields in early 2016, and finally, in June 2016, the 2016 United Kingdom European Union membership referendum, in which Brexit was voted upon.

The Russia–Saudi Arabia oil price war of 2020 is an economic war triggered in March 2020 by Saudi Arabia in response to Russia's refusal to reduce oil production in order to keep prices for oil at moderate level, since its consumption fell dramatically due to 2019–20 coronavirus pandemic. This economic conflict resulted in a sheer drop of oil price over the spring of 2020, with the price becoming negative on April 20.

2020 stock market crash Ongoing stock market crash in 2020

The 2020 stock market crash is a global stock market crash that began on 20 February 2020. On 12 February, the Dow Jones Industrial Average, the NASDAQ Composite, and S&P 500 Index all finished at record highs. From 24 to 28 February, stock markets worldwide reported their largest one-week declines since the 2008 financial crisis, thus entering a correction. Global markets into early March became extremely volatile, with large swings occurring in global markets. On 9 March, most global markets reported severe contractions, mainly in response to the 2019–20 coronavirus pandemic and an oil price war between Russia and the OPEC countries led by Saudi Arabia. This became colloquially known as Black Monday. At the time was the worst drop since the Great Recession in 2008.

Financial impact of the 2019–20 coronavirus pandemic Economic turmoil associated with the pandemic

Economic turmoil associated with the 2019–20 coronavirus pandemic has wide-ranging and severe impacts upon financial markets, including stock, bond, and commodity markets. Major events included a described Russia–Saudi Arabia oil price war after failing to reach an OPEC+ agreement that resulted in a collapse of crude oil prices and a stock market crash in March 2020. The effects upon markets are part of the coronavirus recession and among the many socio-economic impacts of the pandemic.

Coronavirus recession 2020 economic downturn due to the 2019-20 coronavirus pandemic

The coronavirus recession, also known as the Great Lockdown or Great Shutdown, is an ongoing severe global economic recession which began affecting the world economy in early 2020. The recession has been the steepest economic downturn since the Great Depression. On 14 April 2020, the International Monetary Fund (IMF) reported that all of the G7 nations had already entered or were entering into what was called a "deep recession", alongside most of the western world with significant slowdown of growth across developing and emerging economies. The IMF has stated that the economic decline is "far worse" than that of the Great Recession in 2009.

References

  1. Borer, David A. (1995). "Doing Battle: Flight Attendant Labor Relations in '90s". In Darryl Jenkins (ed.). Handbook of Airline Economics. Aviation Week Grp., Div. of McGraw-Hill. pp. 563–566. ISBN   0-07-607087-5.
  2. Harvard International Review - Exuberant Reporting Media and Misinformation in the Markets Archived 2006-09-01 at the Wayback Machine