October 27, 1997, mini-crash
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The October 27, 1997, mini-crash is the name of a global stock market crash that was caused by an economic crisis in Asia. The point loss that the Dow Jones Industrial Average suffered on this day still ranks as the eighth biggest point loss and 15th biggest percentage loss since its creation in 1896. This crash is considered a "mini-crash" because the percentage loss was relatively small compared to some other notable crashes. But after the crash, the markets still remained positive for 1997, though the "mini-crash" may be considered as the beginning of the end of the 1990s economic boom in the United States and Canada, as both consumer confidence and economic growth were mildly severed during the winter of 1997–98 (with neither being strongly affected, compared to the rest of the world), and when both returned to pre-October levels, they began to grow at an even slower pace than before the crash.
The crash started overnight in Asia as Hong Kong's Hang Seng Index fell 6%. However, the most widely watched Asian market, Japan's Nikkei 225, only fell 2% on the day. The losses spread to the European markets where London's FTSE 100 Index fell 98.90 points, or just about 2%, to 4,871.30. The Frankfurt DAX index fell sharply as well. The U.S. markets were widely expected to open lower for the day. The Dow, NASDAQ Composite and S&P 500 all declined for the entire session. At 2:36 pm, when the Dow fell 350 points, the Dow hit its first trading curb halt which lasted 30 minutes. After then, stocks continued their immense slide, eventually hitting the second trading curb at 550 points and trading has ended at 3:35 pm. The second trading curb usually halts trading for one hour, but since there were only 25 minutes left in the session, the New York Stock Exchange had just decided to end trading early. However, Nasdaq trading continued until 4:00 p.m.
By the numbers
The decision of the NYSE to end trading early was controversial. Since the Dow hit the first trading curb at 350 points, the loss in the Dow only equated to 4.54%—not nearly enough to justify halting trading. It is also important to know that the Dow has fallen more than 4.5% on eleven different sessions between 1945 and 1997. Currently, the New York Stock Exchange sets the curbs at 10%, 20%, and 30%, and determines how much 10, 20, and 30% exactly are in point terms by where the Dow finishes at the end of the quarter.
By the end of the day, the Dow Jones Industrial Average fell 554.26 points, or 7.18%, to 7,161.15. Back then, this was the 12th biggest percentage loss and 3rd biggest point loss on record. The Nasdaq Composite fell 7%, or 115.41, to 1,535.51. The S&P 500 fell 64.63, or 6.86%, to 877.01. Several stock market analysts saw this crash as a "correction" to the overheated markets, which had doubled in value in 30 months. This crash put the Dow down 12% from its then-record high of 8,259 on August 6; however, it still gained for the year. Volume also hit a record high. New York Stock Exchange volume topped 695 million shares, breaking the previous record of 684 million shares traded on January 23, 1997. Today, this volume is considered to be very low. $663 billion in market capitalization was wiped out.
U.S. stock markets were widely expected to open lower for October 28, due to the Asian markets falling even more than they did on the 27th. Hong Kong's Hang Seng Index declined a staggering 14%. The Nikkei fell 4.26%. The U.S. stock markets initially continued their drop from the 27th, but abruptly ended, and began to climb. The Dow fell as many as 186 points by 10:06 am, and soon thereafter a rally started. By 10:20 am, the Dow was down only 25 points. Five minutes later, the Dow jumped back into positive territory and was up 50 points. Nine minutes later, at 10:34 am, the Dow made a triple-digit gain of 137.27 points. Stock prices continued to soar in choppy trading throughout the rest of the day. At the close of trading at 4:00 pm, the Dow finished with a then-record 337.17 point gain (recovering 61% of the previous day's loss) to close at 7,498.32. The market restored $384 billion of the $663 billion in market capitalization lost the previous day. One billion shares were traded on the New York Stock Exchange for the first time ever, with a volume of 1.21 billion shares. Currently, this volume is considered very low. The Nasdaq Composite also made a record gain on record volume, gaining 67.93 points to 1,603.02 and saw its first-ever one-billion share day with a volume of 1.23 billion shares.
Other massive losses and sharp rebounds
This was not the first time the market had large losses followed by a sharp recovery. Here are a few other instances:
- Stock Market Crash of 1929 – The Dow falls a total of 23% for October 28 and 29; then makes a sharp 12.84% rebound on the October 30. However, over the next several years the stock market fell dramatically.
- October 13 and 16, 1989 – The Dow plunges 190.50 points, or 6.9% on October 13, 1989 then rebounds 88 points on the 16th.
- Black Monday, October 19, 1987, and October 20 – The Dow suffers the biggest percentage loss in recorded stock market history on October 19 and initially continues its plunge on the 20th. The markets rally sharply in the afternoon and the Dow posts its first triple-digit gain in its history.
- The Securities and Exchange Commission's Analysis of the October 27, 1997 Mini-crash
- CNN/Money's Story on the Crash
- CNN/Money's Story on the Subsequent Rally