Lessons from Market History: How Crashes Shape the Future
Joe Murphy
Managing your retirement should be simple. I help clients control their past work pensions, consolidate their savings, and build their pension funds for the future.
The economy feels precarious right now. People sense uncertainty—whether it's inflation, political instability, or the lingering effects of a post-pandemic world. I have my own thoughts on why we may be facing deeper challenges
For now, I want to take a step back and look at history. The worst moments in market history. The crashes that shook investors to their core. More importantly, I want to explore what we learned from them—because in times of uncertainty, history can be a guiding light.
If you’re serious about understanding markets, I encourage you to stay with me. Market crashes aren’t just stories of devastation; they’re also stories of recovery, resilience, and opportunity.
A Deep Dive into Market Crashes
As a financial planner, I rely on market data, trends, and economic fundamentals. But there’s another aspect to understanding markets that goes beyond numbers—the emotional experience of living through downturns. Fear, uncertainty, and even panic are as much a part of investing as returns and dividends.
History tells us that market crashes happen for a variety of reasons—over-speculation, financial mismanagement, geopolitical events, and sometimes, pure randomness. Yet, the common thread is that markets, economies, and investors eventually adapt and move forward.
Let’s break down some of the most infamous market crashes and what we can learn from them.
1929–1932: The Great Depression
The stock market collapse of 1929 wasn’t just a financial event—it triggered the deepest economic downturn the world had ever seen. A combination of reckless speculation, weak banking systems, and an overreliance on the gold standard caused the economy to contract by nearly 30%. One in five Americans lost their jobs.
The Turning Point
What ultimately helped was decisive government action. Franklin D. Roosevelt’s?New Deal?stabilised financial markets, introduced banking reforms, and restored confidence. The establishment of institutions like the?FDIC?and?SEC?laid the foundation for modern financial stability.
Lesson:?Policy intervention matters. Governments have the ability to steer economies out of crises—when they act decisively.
1938–1942: The Forgotten Crash
This crash is often overshadowed by the Great Depression, but it was a painful period for investors. Stocks had started to recover, only to see another multi-year downturn. The economy was improving, but government policies tightened too soon, causing renewed stagnation.
The Turning Point
Ironically,?World War II?was the catalyst that ultimately pulled the U.S. economy out of its slump. Manufacturing ramped up, employment surged, and technological advancements set the stage for long-term growth.
Lesson:?Economic recoveries can be fragile—removing support too soon can prolong hardship.
1973–1974: Stagflation and Watergate
The 1970s were marked by high inflation, oil price shocks, and political uncertainty. The?Arab oil embargo?sent energy costs soaring, while the Watergate scandal further eroded confidence. Inflation reached double digits, and economic growth stagnated—a combination known as?stagflation.
The Turning Point
Inflation eventually eased, and by the 1980s, the Federal Reserve, led by Paul Volcker, took aggressive action to stabilise the economy through interest rate policies.
Lesson:?Inflation is one of the most dangerous economic threats. Central banks play a crucial role in maintaining price stability.
1987: Black Monday
The 1987 crash happened fast. On?October 19, 1987, global markets plummeted due to a mix of overvaluation, computerised trading, and investor panic. The?Dow Jones fell 22% in one day, the worst single-day decline in history.
The Turning Point
The?Federal Reserve quickly intervened, reassuring markets and preventing a deeper financial crisis. The stock market rebounded, and the economy wasn’t significantly impacted.
Lesson:?Financial markets move quickly, but decisive action can limit damage.
2000–2002: The Dot-Com Bubble
The internet boom of the 1990s led to?unrealistic valuations?in tech stocks. Startups with little revenue were attracting billions in capital. When reality set in, the?Nasdaq lost 83% of its value. The?9/11 attacks in 2001?further accelerated the downturn.
The Turning Point
Eventually, businesses with?real value?survived. The?Federal Reserve cut interest rates, and investors began to recognise which tech companies had sustainable business models.
Lesson:?Bubbles form when excitement outpaces fundamentals. But the best innovations still thrive over time.
2007–2009: The Global Financial Crisis
This crisis was driven by?excessive risk-taking in the housing market. Lenders issued subprime mortgages, financial institutions packaged them into complex securities, and when home prices fell, the financial system collapsed.?Lehman Brothers failed, and global markets plunged.
The Turning Point
Governments intervened with?bailouts and stimulus programs. The?Federal Reserve slashed interest rates, and global central banks coordinated efforts to prevent systemic collapse.
Lesson:?Credit markets are the backbone of the financial system. When they seize up, the economy grinds to a halt.
2020: The COVID Crash
The pandemic brought global economies to a halt. The market crashed as businesses shut down, unemployment spiked, and uncertainty loomed.
The Turning Point
Governments responded?swiftly and aggressively—stimulus checks, low interest rates, and massive central bank intervention kept economies afloat. The development of vaccines also restored confidence.
Lesson:?Quick action in times of crisis can make all the difference.
Final Thoughts: The Future is Never Certain
Markets?rise and fall—but over time, they recover. Crashes feel catastrophic in the moment, but those who stay invested and focus on long-term fundamentals tend to come out ahead.
As a financial planner, my goal is to help clients?navigate volatility with confidence. Whether it's a bear market or a boom, having a solid plan makes all the difference.
Want to discuss how to?build a resilient financial strategy?for your future? Let’s talk.
Broker Consultant at Royal London Ireland
23 小时前Excellent advice Joe