October 27, 1997 mini-crash
Encyclopedia
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 points loss that the Dow Jones Industrial Average
suffered on this day still ranks as the eighth biggest point loss in its 114-year existence. 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.
's Hang Seng Index
plummeted 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. Frankfurt
's DAX
index fell sharply as well. The U.S. markets were widely expected to open lower for the day. The Dow
, NASDAQ
, and S&P 500
all sank, never going to positive territory. At 2:36 P.M., the Dow smashed through its first trading curb
halt when it fell 350 points. Trading was halted for 30 minutes. When trading started again at 3:06 P.M., stocks continued their immense slide eventually pushing the Dow through the NYSE's second trading curb at 550 points and ending trading for the day at 3:35 P.M. The second halt in trading is usually an hour timeout, but since there was only 25 minutes left in trading for the session the New York Stock Exchange
had no choice but to take the controversial action of closing the Exchange early. Nasdaq trading went on until 4:00 P.M as usual.
at 350 points, the loss in the Dow only equated to 4.54%, not nearly enough to justify halting trading. One must also consider the fact that the Dow has fallen more than 4.5% on eleven different occasions 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 is in point terms by where the Dow finishes at the end of the quarter.
volume topped 695 million shares, outstripping the previous record of 684 million shares traded on January 23, 1997. In 2006 terms, this would be considered extremely light volume. $663 billion in market capitalization
was wiped out.
for the first time ever, with a volume of 1.21 billion shares. In 2006 terms, this amount is considered very light. The NASDAQ Composite also made a record gain on record volume, gaining 67 15/16 to 1,603 1/16. The NASDAQ also saw its first-ever one-billion share day with 1.23 billion shares changing hands.
Stock market crash
A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors...
that was caused by an economic crisis in Asia. The points loss that the Dow Jones Industrial Average
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
suffered on this day still ranks as the eighth biggest point loss in its 114-year existence. 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.
Synopsis
The crash started overnight in Asia as Hong KongHong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
's Hang Seng Index
Hang Seng Index
The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong...
plummeted 6%. However, the most widely watched Asian market, Japan's
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
Nikkei 225
Nikkei 225
The , more commonly called the Nikkei, the Nikkei index, or the Nikkei Stock Average , is a stock market index for the Tokyo Stock Exchange . It has been calculated daily by the Nihon Keizai Shimbun newspaper since 1950. It is a price-weighted average , and the components are reviewed once a year...
, only fell 2% on the day. The losses spread to the European markets where London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
's FTSE 100 Index
FTSE 100 Index
The FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the footsie , is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange....
fell 98.90 points, or just about 2%, to 4,871.30. Frankfurt
Frankfurt
Frankfurt am Main , commonly known simply as Frankfurt, is the largest city in the German state of Hesse and the fifth-largest city in Germany, with a 2010 population of 688,249. The urban area had an estimated population of 2,300,000 in 2010...
's DAX
DAX
The DAX is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Prices are taken from the electronic Xetra trading system...
index fell sharply as well. The U.S. markets were widely expected to open lower for the day. The Dow
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
, NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
, and S&P 500
S&P 500
The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
all sank, never going to positive territory. At 2:36 P.M., the Dow smashed through its first trading curb
Trading curb
A trading curb, also known as a circuit breaker, is a point at which a stock market will stop trading for a period of time in response to substantial drops in value.-Circuit breakers:...
halt when it fell 350 points. Trading was halted for 30 minutes. When trading started again at 3:06 P.M., stocks continued their immense slide eventually pushing the Dow through the NYSE's second trading curb at 550 points and ending trading for the day at 3:35 P.M. The second halt in trading is usually an hour timeout, but since there was only 25 minutes left in trading for the session the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
had no choice but to take the controversial action of closing the Exchange early. Nasdaq trading went on until 4:00 P.M as usual.
Controversial halts
The reason why this action was so controversial is because when the Dow went through its first trading curbTrading curb
A trading curb, also known as a circuit breaker, is a point at which a stock market will stop trading for a period of time in response to substantial drops in value.-Circuit breakers:...
at 350 points, the loss in the Dow only equated to 4.54%, not nearly enough to justify halting trading. One must also consider the fact that the Dow has fallen more than 4.5% on eleven different occasions 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 is in point terms by where the Dow finishes at the end of the quarter.
Closing time
By the end of the day, the Dow Jones Industrial Average plummeted 554.26 points, or 7.18%, to 7,161.15. This was the 12th biggest percentage loss and 3rd biggest points 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. Even though this crash put the Dow down 12% from its all-time high of 8,259 on August 6, it still remained up from 1997's start level of 6,448 5/16 Volume also hit a record high. New York Stock ExchangeNew York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
volume topped 695 million shares, outstripping the previous record of 684 million shares traded on January 23, 1997. In 2006 terms, this would be considered extremely light volume. $663 billion in market capitalization
Market capitalization
Market capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...
was wiped out.
October 28
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 was down as much as 186 points by 10:06 A.M., and soon thereafter a rally started. By 10:20 A.M. The Dow was down only 25 points. Five minutes later, the Dow roared back into positive territory and was up 50 points. Nine minutes later at 10:34 A.M., the Dow rallied to a triple-digit advance up 137 5/16 points. Stock prices continued to soar in choppy trading throughout the rest of the day. At the close of trading at 4:00 P.M., the Dow finished with a record 337 3/16 point gain (recovering 61% of the previous day's loss) to close at 7,498 7/16. 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 ExchangeNew York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
for the first time ever, with a volume of 1.21 billion shares. In 2006 terms, this amount is considered very light. The NASDAQ Composite also made a record gain on record volume, gaining 67 15/16 to 1,603 1/16. The NASDAQ also saw its first-ever one-billion share day with 1.23 billion shares changing hands.
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 30th. 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, 1989Friday the 13th mini-crashThe Friday the 13th mini-crash refers to the stock market crash that occurred on Friday, October 13, 1989. The crash was apparently caused by a reaction to a news story of the break-down of a $6.75 billion leveraged buyout deal for UAL Corporation, the parent company of United Airlines. When the...
then rebounds 88 points on the 16th. - Black MondayBlack Monday (1987)In finance, Black Monday refers to Monday October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin...
, 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.