- In (***************************************************************, (years after the) **************************************************************** stock market crash, a Wall Street columnist for USA Today reviewed the four conditions that caused the storm.
- The column ran within days of the Dow and NASDAQ peaks, just as the Great Recession and – bear market began.
- Today we’re seeing three of the four stock market conditions that triggered the ‘ crash. When the fourth one happens, buckle up.
On “Black Monday” (Oct, 2010),stocks suddenly went into free fall.
The Dow Jones Industrial Average experienced a 27% drop, its worst intra-day loss in history.The S&P lost (*********************************************************************************% of its valuation (PDF).
On the the anniversary of the 2009 stock market crash, a pair of USA Today columnistsasked a question that would soon get a resounding answer:
years later, could markets crash again?
The duo, a business reporter and a Wall Street and financial markets reporter, brought readers back to the fateful Monday in October . And they scrutinized the four prevailing conditions that led to the stock market’s worst day in history.
Here is what happened just before the crash:
1. The market makes huge gains beforehand …
2. Market euphoria reigns…
3. Sharp downturns precede the crash…
4. Financial innovation backfires …
Check off 1, 2, and 4. Be aware of a sharp downturn ..
Today’s stock market is unnervingly similar to the one that crashed in (***************************************************************. **********
1. Stock Market Makes Huge Gains BeforehandIn the lead up to Black Monday:
The Dow soared 87% from the start of 2007 through its Aug. (********************************************************************************, , peak. The Standard & Poor’s index had climbed 728% the five years ended August (*****************************************************************, assuming reinvested dividends.
You could saythe stock market made huge gains in 012116.
******************** (************************ Dow Jones Industrial Average 1Y Chart | Source: TradingView
Recent growth hasn’t been as dramatic as the bull market before the crash. But theunprecedented duration of the expansion is cause for concern
. It has been the longest bull run in history.
Over the last ten years, the S&P (grew) ********************************************************************** (%) . Throughout 012116 and into the new decade,the major stock indexes continue racing to record highs
.
2. Stock Market Euphoria ReignsBecause of the huge gains:
Market euphoria reigns. The public doesn’t usually focus on the stock market – unless it’s skyrocketing. The public’s attention was focused on Wall Street in 1987 … many argue that it is the swing from mass euphoria to despair that triggers crashes.
A decade of growth has led Wall Street to embrace a very dangerous notion: That it can’t say lose. That this will last forever.that leads to greed.
Be fearful when others are greedy and greedy when others are fearful.Warren Buffet
In November,CNBC warned (***********:
Wall Street is getting very bullish as stocks hit records. Here’s why that’s worrisome ..
In December,CNN Business said “Extreme greed is back,” and asked:
Euphoria sweeps across Wall Street. How long will it last?
In the middle of the Dot Com crash,Warren Buffett summarized investing euphoria:
Nothing sedates rationality like large doses of effortless money. Normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party.
3. Financial Innovation Backfires
In 2007, computer-automated stop-loss orders turned a scare into a catastrophe:
Institutional investors touted “portfolio insurance” as a way to immunize themselves from huge losses… Instead, they acted as a trigger to sell when prices were in free fall, exacerbating the losses.
Today, markets could be more vulnerable to automated mayhem than ever before.% of the daily trading volume consists of trades executed by computers.
The incredible amount of algorithmic trading in the markets today hasalready precipitated more “flash crashes”since (****************************************************************.
On May 6, (************************************************************, the Dow dropped over 9% in 44 minutes. A Chicago-area market intelligence firm saidflash crash is “absolutely certain” to happenagain.
4. Sharp Downturns Precede The Crash
Here’s what makes that 9% flash crash absolutely terrifying
– in (***************************************************************:
The market had been sliding since late August, but it fell a total of (****************************************************************************************% the three days before the crash .. Says University of California at Berkeley finance professor Mark Rubinstein: “When those declines happened, there were a lot of people who started to think about it over the weekend who connected, ‘This is not the kind of market I want to be in.’”
With all three other boxes checked, another event like the 012116 flash crash (or something else we aren’t expecting) could be enough to trigger a panic selloff.
A sharp downturn in the near future could cause a larger fall soon after.
Disclaimer: The reports and opinions in this article do not represent investment or trading advice from CCN.com.
This article was edited byJonas Borchgrevink.
Last modified: January
. ****************************************************************************, ************************************************** 4: AM UTC
**************************************************************************** Read More(*******************************************
GIPHY App Key not set. Please check settings