NEW YORK: It has taken Wall Street considerable time to recover from crashes and for investors to regain their confidence and decide it was safe to put their money into stocks again. A look at how the market recovered from its two best-known crashes, and how much it needs to recover from its latest plunge.
When the market crashed Oct. 19, 1987, sending the Dow Jones industrial average down 508 points to 1,738.34, the blue chips had lost 938 points, or 36.1 percent, since reaching a then-record close of 2,722.42 on Aug. 25, 1987. It took just over 15 months for the Dow to get back to its pre-crash level, and almost two years to the day Aug. 24, 1989 to reach a new closing high, 2,734.64.
_The recovery from the 1929 crash was more difficult and spanned a quarter century. The Dow had reached a high of 381.17 on Sept. 1 and then began drifting downward. Although the date of Oct. 29, 1929, Black Tuesday, is probably best-known by the public, many market historians say the crash began on Thursday, Oct. 24, and accelerated the following Monday and Tuesday.
From its close of 305.85 on Oct. 23, the Dow tumbled 75.78, or 24.8 percent, by the time it ended at 230.07 on Black Tuesday. It continued its decline to a low of 198.69 on Nov. 13, giving it a drop of 107.16, or 35 percent.
That also made for a drop of 182.48, or 47.9 percent from the September high. But stocks kept on falling as the Great Depression wore on, and the Dow fell to 41.22 on July 8, 1932, giving it a loss of 339.95, or 89.2 percent from the September 1929 high.
The Dow did not close above 305.85 again until April 1, 1954, more than 24 years after the crash, and it didn't return to 381.17 until Nov. 23, 1954, a quarter century after Black Monday and Tuesday.
The Dow has a large percentage drop to regain this time. By Friday's close, the average had fallen 5,713 points, or 40.3 percent, from its record finish of 14,165.43 a year earlier, on Oct. 9, 2007. More recently, it fell 2,970, or 26 percent, from its close before the Sept. 15 collapse of Lehman Brothers Holdings Inc., the event that triggered the freeze-up in the credit markets and that sent stocks plunging.
With Monday's advance of 936.42, the Dow is still nearly 4,778, or 33.7 percent, below its record close.
The major tragedy this time as compared to the 1930s is – markets worldwide were small, not matured, non-highly dependant and many were non-existent. Bank failure this time in USA has emptied money in hundreds of markets world wide. Recovery is definitely going to take time but definitely not decades. The resolution would be putting back money in the market and keep the consumption on the track. Many Asian markets have their own corrective measures and USA has its own bailout plan. All combined might reduce the recovery time.
Lisa
Hedge Fund Jobs
It was the dust bowl in the 1930's... . So what are you saying 24years / 5 years = ? Is the dollar just going to get stronger aboard and stocks flat? Heck with buying US stocks... Ireland or any other country could be the best buy if you are selective.
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I think this market correction is a healthy resetting of an over inflated market. For 70 years the market gained ground in a steady, controlled fashion. Then in the 90's,with the advent of the internet, online trading, and the associated technology boom, the markets suddenly went haywire.
It's clear to me the market can not sustain these kinds of runs, as evidenced by the "dot com" bust, and now the "credit crisis." To me, these market results should teach us a valuable lesson:
When everyone including your neighbors dog starts jumping on the bandwagon, it's time to protect your profits. Increase cash, utilize protective levers such as puts and shorts, and keep a level head.
I've spent a great deal of time analyzing this market, and have put together what I believe is a solid prediction of the market bottom, the conditions under which it will come, and where your money should be when we get there.
Here's a link: http://recordpricebreakout.com/where-to-put-you-money-when-the-sp-500-bottoms/