As a budding trader, it pays to be aware of the history of financial bubbles and the crises that have come before. While flash-crashes are a more recent phenomenon due to the reliance on technology and algorithmic trading, financial bubbles and crises are as old as the major commodities and stock index markets themselves.
This financial timeline traces those economic events from the early 17th-century through to the present day, providing details about the causes and after-effects of each.Start
Dutch Tulip Mania was caused when speculation drove the price of tulips to extremes.
At its peak, the price of single tulip bulbs rose to 10 times the annual income of a skilled craftworker.
Tulip prices were unsustainable and the market collapsed, causing serious debts for many speculators.
By 1638, Tulip prices had returned to their normal levels.
The South Sea Shipping Company attracted huge amounts of investor capital.
The South Sea bubble saw its stock rise by more than 700% to its peak in July 1720.
The overinflated stock fell by 90% in just three months.
The UK government was forced to undertake a bailout. It’s still paying interest on a small proportion of the debt today.
In the ‘roaring ‘20s’, excessive speculation created the first major developed-bull market.
The market went on a nine-year run that saw the Dow Jones increase in value tenfold.
The Wall Street Crash began on October 24, 1929, when share prices on the NYSE collapsed.
The world economy was plunged into The Great Depression. By 1932, America was mired in its worst economic depression.
The Hunt brothers tried to corner the market in precious metals, driving up the price.
The price of silver and gold peaked at $49.45 and $843 respectively in January 1980.
The price bubble burst, with silver and gold falling to less than $5 and $300 by 1982.
Record-high inflation and interest rates that drove up the prices have not been seen since.
Japan experienced a three-decade-long economic boom that created a real estate and stock market bubble.
The Nikkei stock index peaked on December 29, 1989, having tripled to 39,000.
The Nikkei lost 63% of its value by August 1992.
Japan’s economy suffered several recessions, real estate prices plummeted and the Nikkei has never been so high.
The 1982-2000 bull market in the US caused prices of technology and internet stocks to soar.
The NASDAQ peaked at 5048 on March 10, 2000, with its value doubling in the final six months.
The Dot Com bubble burst in September 2002 and shares in most internet firms lost 95% of their value.
The S&P 500 was cut nearly in half, internet businesses went bust and the economy fell into recession.
S&P 500 Homebuilding Index
Real estate prices and the valuations of homebuilders rose with speculation fuelled by low-interest rates.
A homebuying frenzy drove property prices up by 50 to 100 percent depending on the region.
The S&P 500 Homebuilding Total Return Index fell by 90% from its July 2005 peak.
The housing market crash was the worst financial calamity since the Great Depression, leading to a global recession.
The price of crude oil started to rise in 1998 and continued to soar until 2008.
In July 2008, the price of crude oil peaked at $145 per barrel.
From July 2008 to January 2009, the oil price crash saw prices fall by 77%, hitting a trough of $35 per barrel.
The economic recovery that began in 2009 saw the price of oil return to over $100 per barrel.
E-mini S&P 500 Futures
Navinder Singh Sarao began manipulating the market in 2009 using software that he modified.
By rapidly placing and cancelling orders automatically, Sarao caused stock indices to rise and fall very quickly
In the flash-crash of May 6, 2010, the S&P 500 E-mini futures collapsed by over 6% in just seven minutes.
The S&P 500 E-mini rebounded almost immediately and Sarao was jailed for market manipulation.
The second silver and gold price bubble resulted from a silver bull market that ran from 1999 to 2011.
Silver peaked at $43.25 and gold at $1,896 per ounce.
The bull market ended abruptly in April 2011 and prices of gold and silver fell by 35% and 56 % respectively.
The USD/JPY flash-crash of 2011 was driven by a lack of liquidity, taking place at the least liquid time of the day.
USD/JPY had come under significant pressure following a massive earthquake and tsunami in Japan.
This selling pressure led to a USD/JPY decline of 3% in less than 10 minutes.
The USD/JPY recovered sharply with no lasting economic impact.
A month-long decline in yields preceded the treasury bond flash-crash on October 15.
On October 15, 2014, the yield on the 10-year US Treasury bond dropped and recovered 1.6% in just 12 minutes.
There is still no clear cause for the severe flash-crash, which is now notorious in Treasury bond rates’ history.
On January 15, 2015, the Swiss National Bank announced it was no longer supporting the Swiss Franc vs. the Euro at 1.20.
There was a spectacular drop, with an instant aggregate price decline of 13% and trades as low as 0.68.
With fewer trades executed, the void left by the 2015 flash-crash took over three years to fill.
The Great British Pound came under intense pressure as a result of the Brexit referendum.
The pound flash-crash occurred during the most illiquid time of the day.
The crash was severe, with the GBP losing nearly 5% against the USD in just a couple of minutes
A large proportion of the losses sustained during the pound flash-crash were recovered in the following 20 minutes.
The cryptocurrency craze created a Bitcoin bubble, with its value rising from $0.06 to nearly $20,000.
Most of the gains came in less than a year, with Bitcoin peaking at $19,600 in 2017.
When the Bitcoin bubble burst in 2018, its value fell by 82% over a year.
The value of Bitcoin has now stabilised. At the time of writing (September 2019), one Bitcoin is valued at $9,638.
Index futures became increasingly fragile, creating the perfect environment for the Dow flash-crash in 2018.
On February 5, 2018, the Dow opened at over 25,500 points.
There was a sudden 4% drop in Dow futures in just 10 minutes. By 3.12pm, the Dow was 1,597 points down.
The Dow recovered fiercely, closing 1,175 points down. The Dow crash was the result of short-term stress and high-frequency trading.
In February 2020, markets started waking up to the fact that a coronavirus outbreak in China - Covid-19 - was going to lead to a global pandemic.
U.S. stocks were trading at record highs before crashing into bear market territory at an unprecedented pace.
By mid-March, the S&P 500 had lost over 30% of its value in just a month’s time and oil prices crashed due to a cratering demand.
We’ll present more facts and figures later as this historical event continues to unfold. Unfortunately, it’s a story that is far from over.