Comparison of stock market crashes of 1929, 1987, 2008 and 2020

I am writing up the following companion piece to go along with my Tableau visualization of the stock market crashes of 1929, 1987, 2008 and 2020. I was very curious about these events and found my analysis very interesting and telling.

1929

The crash of 1929 is a valauble lesson in just how bad things can get. And this is to say, they can get really, really bad. Even without the historical context of the Great Depression, the chart is breathtaking. In this crash period, we see a world broken by the depression and later seared by World War II. By the time the Dow Jones Industrial Average regains its peak in 1954, the world has been completely and utterly transformed in every conceivable way.

When we see the massive interventions in the markets of governments and central banks in 2008 and 2020, we can look to 1929 to see just what it is they are trying to prevent.

1987

The crash of 1987 comes on suddenly but after its dramatic start, it begins a slow and steady recovery. Of all the historic crashes I analyzed, it is the mildest. And yet, it still takes two years to complete a full recovery on the index.

2008

The crash of 2008 comes on slowly, coming off a peak in 2007, but picks up in the fall of 2008 and begins a dramatic drop. Governments and central banks take massive stimulus action. This crash is brought on by a collapse in the United States housing market and the accompanying Great Recession. The Dow Jones average recovers its peak by 2013.

2020

The crash of 2020 is sudden and dramatic, but then starts a quick recovery and then gets very choppy. We are seeing unprecedented market news like the West Texas Intermediate oil price dropping into negative territory and also some significant bankruptcies are being announced. This does not bode well for what is to come.

Conclusion: We are nowhere near out of the woods yet. As we can see, even in the mildest market crash (1987), it took 4 months to touch bottom and 2 years to recover. In the most severe case (1929) it took almost 3 years to touch bottom and 22 years to recover. We have likely not seen the bottom of the market, and are likely at least 18 months away from a recovery. As Sven Henrich put it:

Use of Dow Jones Industrial Average for historical comparison

I choose to use the Dow Jones Industrial Average for my analysis. I know that the Dow Jones has a survivorship bias, as it only includes the 30 top US companies of the day. But I used it because it is more historic, and also because for many the Dow Jones Industrial Average is the stock market. It also allows us to take a snapshot in time by seeing the components of the Dow (see below). I could have used a more broad market index but for the purposes of my analysis it tells the story I wanted to tell.

I set each stock market crash starting point at the pre-crash peak, and then used a percentage decline to show the losses against each other, counted out in days post-peak.

For historical interest, here are the Dow Jones Industrial Average components for the crash periods:

Dow Jones of September 1929

Allied Chemical and Dye CorporationInternational Nickel Company
American Can CompanyMack Trucks, Inc.
American Smelting & Refining CompanyNash Motors Company
American Sugar Refining CompanyNational Cash Register Company
American Tobacco CompanyNorth American Company
Atlantic Refining CompanyParamount Publix Corporation
Bethlehem Steel CorporationRadio Corporation of America
Chrysler CorporationSears Roebuck & Company
Curtiss-Wright CorporationStandard Oil Co. of New Jersey
General Electric CompanyThe Texas Company
General Foods CorporationTexas Gulf Sulpher Company
General Motors CorporationUnion Carbide Corporation
General Railway Signal CompanyUnited States Steel Corporation
B.F. Goodrich CorporationWestinghouse Electric Corporation
International Harvester CompanyW.F. Woolworth Company

Dow Jones of October 1987

Allied-Signal IncorporatedGoodyear Tire and Rubber Company
Aluminium Company of AmericaInternational Business Machines Corporation
American Can CompanyInternational Paper Company
American Express CompanyMcDonald’s Corporation
American Telephone and Telegraph CompanyMerck & Co.
Bethlehem Steel CorporationNavister International Corporation (formerly International Harvester Company)
The Boeing CompanyPhillip Morris Companies
Chervon CorporationThe Procter & Gamble Company
The Coca-Cola CompanySears Roebuck & Company
E.I. du Pont de Nemours & CompanyTexaco Incorporated (formerly The Texas Company)
Inco LimitedUnion Carbide Corporation
Eastman Kodak CompanyUnited Technologies Corporation
Exxon Corporation (formerly Standard Oil Company of New Jersey)USX Corporation (formerly United States Steel Corporation)
General Electric CompanyWestinghouse Electric Corporation
General Motors CompanyF.W. Woolworth Company

Dow Jones of October 2008

3M CompanyHewlett-Packard Company
Alcoa Inc. (formerly Aluminium Company of America)The Home Depot, Inc.
American Express CompanyIntel Corporaiton
American International Group Inc.International Business Machines Corporation
AT&T Inc.Johnson & Johnson
Bank of America CorporationJPMorgan Chase & Co.
The Boeing CompanyMcDonald’s Corporation
Caterpillar Inc.Merck & Co.
Cheron CorporationMicrosoft Corporation
Citigroup Inc.Pfizer Inc.
The Coca-Cola CompanyThe Procter & Gamble Company
E.I. du Pont de Nemours & CompanyUnited Technologies Corporation
Exxon Mobil CorporationVerizon Communications Inc.
General Electric CorporationWal-Mart Stores, Inc.
General Motors CorporationThe Walt Disney Company

Dow Jones of April 2020

3M CompanyJPMorgan Chase & Co.
American Express CompanyMcDonald’s Corporation
Apple Inc.Merck & Co.
The Boeing CompanyMicrosoft Corporation
Caterpillar Inc.Nike, Inc.
Chevron CorporationPfizer Inc.
Cisco Systems, Inc.The Procter & Gamble Company
The Coca-Cola CompanyRaytheon Technologies
Dow Chemical CompanyThe Travelers Companies, Inc.
Exxon Mobil CorporationUnitedHealth Group Inc.
The Goldman Sachs Group, Inc.Verizon Communications, Inc.
The Home Depot, Inc.Visa, Inc.
Intel CorporationWalgreens Boots Alliance, Inc.
International Business Machines CorporationWalmart Inc.
Johnson & JohnsonThe Walt Disney Company

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