Stock market crashes are sharp, rapid declines in the value of major stock indexes, often triggered by economic imbalances, investor panic or external shocks. Markets regularly fluctuate, but crashes are more extreme and can lead to long-term economic consequences. Some of the most significant crashes in U.S. history have reshaped investor behavior and regulatory practices. Understanding these historical downturns can help investors make more informed decisions and prepare for future volatility.
Historical Stock Market Crashes
While many market downturns have occurred over time, these five stock market crashes stand out for their historical significance and lasting impact on investments.
A stock market crash is a sudden, severe decline in stock prices, typically over 10%, occurring in a short period, often with little warning.
- 2020 COVID-19 crash (February–March 2020): The stock market’s biggest losses in spring 2020 were triggered by COVID-19 infections, global shutdowns, and widespread economic uncertainty.
- 2008 financial crisis (September 2008–March 2009): The Great Recession was sparked by the housing market crash, worsened by excessive risk-taking, mortgage-backed securities, and poor regulation, leading to a global credit crisis.
- 2000 Dot-Com bubble burst (March 2000): The dot-com bubble, fueled by speculation in tech stocks during the 1990s expansion, burst in March 2000, causing a sharp market downturn.
- 1987 Black Monday (October 19, 1987): On October 19, 1987, the stock market saw its largest one-day percentage drop, caused by factors like automated trading, overvalued stocks, and market volatility.
- 1929 Great Depression (October 28–29, 1929): On Black Tuesday, October 29, 1929, 16 million shares were traded and $14 billion was lost, part of a broader market collapse that included Black Thursday (October 24) and Black Monday (October 28).
April 2025 drop
On April 2, 2025, President Donald Trump announced sweeping tariffs against nearly every country, which caused the S&P 500 to plunge by more than 12% in just four trading sessions. However, on April 9, Trump reversed course, placing a 90-day pause on some of the most severe levies, which sparked a 9.5% rally, the biggest one-day gain in 17 years. The market's swift recovery highlights the volatile reaction to the tariff uncertainty, though its long-term impact on stock market history remains to be fully determined.
Quick take
- Stock market crashes are sudden, sharp declines typically driven by panic, economic imbalances, or unexpected global events.
- Major crashes can leaving lasting impacts on the economy and investor behavior.
- Recovery times vary by crash, but markets have consistently rebounded over time, rewarding patient investors who stay the course.
- Strategies like portfolio diversification, long-term planning and avoiding emotional reactions help protect investments during crashes.
2020 COVID-19 crash
Pre-crash environment
As public health fears grew during the beginning of the COVID-19 pandemic, lockdowns and business closures led to a sudden halt in consumer spending, travel and production. With millions of workers unable to do their jobs and global supply chains disrupted, investors began to anticipate a severe economic contraction and corporate earnings collapse. The virus caused a 3.5% annualized rate of contraction in GDP that then bled over into the stock market, causing extreme losses.5
Trigger/event
The market crash began on February 20, 2020, as news broke of rapidly rising case counts in Europe and the first major outbreak in the U.S. Panic set in after a series of emergency health warnings and event cancellations — including the abrupt cancellation of large public gatherings and international travel.6 The tipping point came when the World Health Organization declared COVID-19 a pandemic on March 11, triggering a wave of mass selloffs.7
Market impact
COVID-19’s effect on the stock markets began on February 20th, 2020 and ended on April 7th. A few days in particular showed pronounced losses:
- March 9, 2020: The Dow dropped by 7.79% to 2,014 points.8
- March 12, 2020: The Dow fell another 2,352 points for a 9.99% drop, closing at 21,200.9
- March 16, 2020: The Dow dropped nearly 3,000 points to close at 20,188, signifying a 12.9% decrease
How much would you have lost in a stock market crash?
Response
With markets in a freefall, Congress and the Federal Reserve intervened. Interest rates were significantly lowered by the Federal Open Market Committee, and Congress approved a $2.2 trillion fiscal stimulus package.11 The Federal Reserve also showed support with $1.5 trillion in corrective measures. Meanwhile, the New York Stock Exchange halted trading multiple times throughout this period.12
Recovery timeline
With the bailouts in place, confidence in the market slowly began to rebuild. By mid-October 2020, the S&P 500 had risen 27% from its previous low; by November, the Dow was surpassing 30,000, the first time in history to achieve such heights. At the end of 2020, the S&P was up 15.6%, while the Dow enjoyed 43% growth.
Key lessons
- The COVID-19 crash demonstrated the speed at which markets can react to global uncertainty, and the equally swift impact of coordinated government intervention.
- Investors were reminded of the importance of staying invested during extreme volatility, maintaining emergency savings, and avoiding panic-driven decisions.
- The crash also highlighted the growing role of algorithmic trading and real-time news in amplifying market swings.
2008 Financial Crisis
Pre-crash environment
The mid-2000s again brought economic prosperity to the US with a housing boom initiated by subprime mortgages by Fannie Mae. Suddenly, the dream of homeownership was a reality for those with bad credit, and home mortgages flourished. Over time, however, banks began to lose faith in the home loans being issued due to their increased risk.
Trigger/event
- 1. By 2006, rising interest rates and a slowdown in the housing market led to a surge in mortgage defaults, especially among subprime borrowers.
- 2. As mortgage-backed securities began losing value, financial institutions holding large amounts of these assets came under pressure.
- 3. In March 2008, investment bank Bear Stearns collapsed and was sold at a steep discount to JPMorgan Chase.13
- 4. In September 2008, Lehman Brothers, one of the largest U.S. investment banks, filed for bankruptcy, triggering widespread panic.14
- 5. Fearing a collapse of the entire financial system, the U.S. government proposed a $700 billion bailout plan to stabilize the banking sector.
- 6. On September 29, 2008, Congress rejected the bill, prompting the Dow Jones to plunge 777.68 points, the largest one-day point drop at the time.
- 7. The bailout bill was revised and passed several days later, but by then, investor confidence had already been severely shaken.
Market impact
The crash is considered to have officially begun in September 2008 when the Dow fell by 13% and the US economy crashed by 0.3 percent. By March 2009, the Dow Jones had plunged 6,594.44 points, a full 54% below its peak, with the S&P 500 down nearly 60 percent.
Response
When homeowners began to default on their mortgages, financial institutions began to suffer. The federal government got involved with bank bailouts and introduced the American Recovery and Reinvestment Act of 2009 to revitalize the economy and stimulate new growth.
Recovery timeline
The housing crisis resulted in widespread layoffs and unemployment, and it would take four years for the stock market to rebound. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed, restricting bank activity, enforcing larger reserves and allowing for greater federal oversight.15
Key lessons
- The Dodd-Frank Act was introduced, which imposed stricter oversight on banks, increased capital requirements and created the Consumer Financial Protection Bureau (CFPB) to guard against predatory lending.16
- Homebuyers became more cautious about adjustable-rate mortgages and subprime loans.
- Investors and regulators gained a deeper understanding of systemic risk and the importance of transparency in complex financial products.
2000 Dotcom bubble burst
Pre-crash environment
In the late 1990s, IT and telecommunications exploded, bringing a whole new world of investment opportunity, and suddenly, there was a flurry of trading activity over burgeoning online businesses. The NASDAQ Composite index skyrocketed from 751.49 to 5,132.52, marking a 582% increase from January 1995 to March 2000.17
Trigger/event
- Dozens of startups with “.com” in their names went public through IPOs, often without solid business models or paths to profitability.
- Valuations were driven by hype rather than earnings, with investors betting heavily on projected future growth.
- In early 2000, a series of disappointing earnings reports from major tech firms shook investor confidence, and the bubble officially began to burst in March 2000, when the NASDAQ began a steep decline.
- As companies failed to deliver profits, venture capital dried up and investors started pulling out en masse, causing the NASDAQ to lose over 75% of its value by October 2002.
Market impact
After the Federal Reserve increased interest rates, investors began hurriedly selling off their holdings.18 The NASDAQ plummeted by 75% from March 2000 to October 2002. Popular companies declared bankruptcy, and investors quickly unloaded shares. By 2002, investors had suffered around an estimated $5 trillion in losses.
Response
Multiple dot-com companies and investment firms faced repercussions from the Securities and Exchange Commission (SEC) in the form of penalties and even criminal charges. To help with economic pressures, the government enacted the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) to provide tax cuts for individuals, businesses and estates.19
Recovery timeline
The dot-com crisis abruptly ceased venture capital. Investors began to use a company’s burn rate to determine a company’s viability. While some companies managed to survive, others were forced to liquidate. Still, nearly half of dot-come companies were able to survive through 2004.20
Key lessons
- Investors learned to evaluate companies based on financial fundamentals like burn rate and profitability, not just hype.
- The crash reinforced the need for due diligence before investing in unproven startups or IPOs.
1987 Black Monday
Pre-crash environment
Black Monday came after a period of pronounced economic prosperity. Investors enjoyed a bull market lasting five years that saw the Dow Jones Industrial Average (DJIA) increase from 776 in 1982 to 2,722 in 1987.21
Trigger/event
In the weeks leading up to Black Monday, investors grew nervous about rising interest rates, a weakening U.S. dollar and growing trade deficits. As concerns mounted, stock prices began to dip. Then, on October 19, 1987, automated computer trading systems triggered massive sell orders as the market started to decline. The combination of market fears and automated sell-offs led to a cascade effect. Global markets reacted, with losses starting in Asia and spreading through Europe before hitting the U.S., where the Dow Jones plummeted 22.6% in a single day.
Market impact
On the worst day, October 19, the DJIA was down 22.6% at 508 points and the S&P 500 fell over 55 points with a 20.4% total decline.22 Nearly 605 million shares were traded in a single day, and the New York Stock Exchange suffered losses of over $500 billion in market capitalization.23
Response
The Federal Reserve stepped in on October 20, 1987, announcing guaranteed liquidity for US financial systems. The NYSE implemented circuit-breakers that would temporarily pause trading to prevent future crashes.24
Recovery timeline
The Federal Reserve stepped in to reassure markets by pledging to provide liquidity and support the financial system. This calming signal, combined with a temporary halt in program trading and improvements to market infrastructure, helped restore investor confidence. Markets gradually stabilized over the following months. By early 1988, trading systems had been updated with circuit breakers to prevent future rapid sell-offs. The Dow fully recovered by mid-1988, and by the end of that year, it had gained nearly 25% from its post-crash low.25
Key lessons
- Circuit breakers were introduced to pause trading during extreme volatility and help prevent panic-driven sell-offs.
- The crash highlighted how automated trading systems can accelerate market declines, prompting reforms in how trades are executed and monitored.
1929 Great Depression
Pre-crash environment
Throughout the Roaring Twenties, the U.S. economy experienced rapid growth, technological innovation and rising consumer confidence. The stock market soared as millions of Americans began investing, often encouraged by the promise of easy wealth. With little regulation in place, investors increasingly bought stocks on margin, borrowing money to amplify returns. By September 1929, the market had reached record highs, but the gains were built largely on speculation rather than fundamentals.
Trigger/Event
- By late 1929, stock prices were heavily overvalued, fueled by excessive speculation and widespread margin trading.
- Large investors began quietly selling off shares in September, sparking nervousness in the market.
- On October 24, 1929 (Black Thursday), panic selling began as trading volumes surged and prices fell sharply.
- The panic intensified over the next few days, culminating in Black Tuesday (October 29), when 16 million shares were traded and stock prices collapsed.
- The crash wiped out billions in wealth and marked the beginning of the Great Depression.
Market Impact
The fall began on September 3, leading to a market crash that would last two days between October 28th and 29th. On Black Monday, as it would become known, the Dow declined 13 percent and another 12% drop the following day.
Response
The New York Fed stepped up to help. The sale of government securities and a lower discount rate helped support commercial banks, keeping short-term interest rates reasonable while boosting total banking reserves so banks could stay in business throughout the slump.
Recovery Timeline
The initial crash was just the beginning. A month later, the Dow’s value had decreased by about half, and it continued over the next several years. In July 1932, the Dow closed at 41.22, a full 89% below its peak value. The economic challenges of the Great Depression stunted the stock market, and these losses only served to further heighten the economic challenges Americans were facing.
This symbiotic relationship continued to strain the stock market until 1939, when the market finally began to recover, thanks to the restructuring of the entire financial system, including the Federal Reserve.
- Investors learned the risks of using excessive leverage, as borrowing to invest can magnify losses during a downturn.
- The crisis highlighted the value of long-term investing, as markets eventually recovered for those who held their positions.
What is a stock market crash?
Markets are always subject to fluctuation, but a stock market crash represents a significant decline in stock prices, usually more than 10%, over a short period. This decline is often sudden and unexpected; the market may see periods of decline, but this extreme drop in price comes quickly and often with little warning.
- Stock market crash vs. bear market: A stock market crash marks the beginning of a bear market. It typically follows a long bull market during which markets flourished.
- Stock market crash vs. market correction: Like a stock market crash, a market correction generally applies when markets plunge more than 10%. A crash is much more sudden and severe than a correction, which happens at a much slower pace.
- Stock market crash vs. recession: A recession takes place over an extended period, with economic activity slowing gradually. A stock market crash, on the other hand, often comes quickly and unexpectedly.
How do I protect my 401(k) from a stock market crash?
There are several strategies to help protect your 401(k) or IRA from a stock market crash.
- Settle in for the long haul: “What investors should do is remind themselves that they should not allow their emotions to be their portfolios’ worst enemy,” Sam Stovall, chief investment strategist at CFRA Research, told Kiplinger.26
- Diversify your portfolio: Rob Williams, managing director of financial planning at the Schwab Center for Financial Research, tells the AARP this “will provide a cushion, so you have some money that won’t move around in value as much. That knowledge will keep you from [making] any extreme reactions.”
- Keep contributing to your 401(k): Jesse Piburn, Senior Director of Advisory and Planning at Empower explains, “While it's important to be prepared during uncertain times and have enough cash (generally 3-6 months of living expenses) in your emergency fund, investors should continue to contribute to their 401(k) if they have the ability to do so.”
- Enlist a financial advisor: “In any crisis situation, whether it's a pandemic or a personal medical problem, the best approach is to have a comprehensive financial plan already in place," said Sylvia Garcia, vice president and senior financial advisor with City National Securities, the brokerage arm of City National Bank. “The plan should be written and measurable, and then the crisis serves to show you how aligned it is with your risk preferences."
Bottom line
If history has taught us anything, it is that stock market crashes happen, and they will happen again. While no one knows exactly how long the market will take to rebuild, the past has shown that emotional buying and selling can put your portfolio at a serious disadvantage when the market eventually recovers.
FAQs
Lena Muhtadi Borrelli brings over 20 years of experience in the finance industry. She began her career at Morgan Stanley before transitioning over to media. As a finance writer, she has served as an authority for several respected outlets, including Forbes, TIME, Newsweek, Bankrate, Investopedia, Insurance.com, and InvestorPlace. No matter what she is writing, Lena has a unique ability to simplify complex topics, making finance more approachable and relatable to the average reader. When she is not writing or scanning the news for the latest headlines, she is happiest spending time in the Florida sunshine with her husband and two pups.
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