Topic · Core Finance & Asset Classes
← All topicsMarket History & Crises
30 articles · 10 checkpoints · 16 deeper reads · 4 reference notes
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On 19 October 1987 the Dow fell 22.6% in a single day, the largest one-day percentage drop in its history, driven not by any single piece of news but by a mechanical hedging strategy, portfolio insurance, that was designed to sell into weakness and, run by enough investors at once, became the crash it was supposed to protect against.
Russia's 1998 default was, by itself, a modest event for global markets, but it was the shock that unwound Long-Term Capital Management, a hedge fund so large and so interconnected that its collapse threatened the whole financial system and required a Fed-organized private bailout to contain.
A speculative stock market boom, heavily fueled by borrowed money, collapsed over a few days in October 1929, but the crash itself was a symptom, not the cause, of the decade-long depression that followed once a fragile, undersupervised banking system started failing in waves.
Internet stocks were priced for a future that eventually arrived, just not on the timeline or with the survivors the market had bet on, and the Nasdaq's roughly 78% peak-to-trough collapse between 2000 and 2002 is the clearest case study in how a real technological revolution and a terrible batch of individual investments can both be true at once.
US house prices had never fallen nationally before 2007, so nobody had priced the mortgage bonds for a world in which they did. When they fell anyway, the losses ran up a chain of leverage that nearly took the banking system with it.
In 2022 stocks and bonds fell together for a full year, handing a standard 60/40 portfolio its worst return in decades, because the shock came from inflation and rate hikes, the one source of risk that pushes both asset classes down at once.
Silicon Valley Bank held long-dated bonds that lost value as rates rose, and a concentrated base of large, uninsured depositors who could all leave in an afternoon, a combination that turned an accounting loss on paper into a bank run in 48 hours.
In March 2020 even US Treasuries, the asset everyone runs to in a panic, sold off alongside stocks, because everyone needed cash at once and Treasuries were the thing they could actually sell.
A UK government mini-budget in September 2022 triggered a rapid rise in gilt yields that forced leveraged pension strategies to sell the very bonds whose falling price was causing the problem, pushing the Bank of England into an emergency intervention within days.
On 5 February 2018 the VIX jumped 116% in a single day and two products built to short volatility were wiped out overnight, a small, low-volume corner of the market that turned out to be structurally connected to the world's largest.
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