The Wall Street Crash 90 years on: are we heading down the same road?

Almost $400bn (£309bn) in today’s money, more than 1.5 million jobs and faith in financial institutions: all this was lost in the Wall Street Crash. Ninety years ago this week, the American stock market plummeted, eventually losing 90pc of its value – from its 1929 high to when it hit rock bottom in 1932. It took more than a quarter of a century for the market to recover.

Although subsequent stock market crises have left their marks on public memory, they have tended to be much less extreme than in 1929, said Sarah Coles of broker Hargreaves Lansdown.

After Black Monday in 1987, the FTSE fell 35pc from its pre-crisis peak. Yet, just 19 months later, the British market had already recovered. When the Dotcom bubble burst in 2000, at its nadir the FTSE All Share was down by 44pc and took until late 2005 to return to pre-crash levels. During the most critical point of the 2007 crash, the stock market was 42pc lower than its pre-crisis high and it took three and a half years to recoup – though the after-effects of the economic depression dragged on much longer.

Is 1929 therefore just an anomaly? David Page, a senior economist at investment manager Axa IM, said markets will likely go through another period as bad as 1929 and the Great Depression that followed. “You need a certain level of hubris to believe markets will keep going up forever, as investors did in 1929 and to a lesser extent in 2007,” he said. “After things fall apart, the same generation doesn’t tend to make the same mistake; but each new generation can think that this time it is different.”

When a crash will happen, and how serious it will be, however, is unclear.

Although Mr Page does not expect a recession in the next year, he thinks today’s political issues and economic constraints are similar to those in the Twenties. “Certainly within the next few years in markets such as America and Britain, the likelihood of a recession is high,” he said.

Ms Coles advised investors fearing the worst to remember that crashes are not the norm. “The far more boring everyday reality is long-term growth, which tends to happen with a great deal less fanfare,” she said. “If you wait until a crash has happened before investing, you’d miss out on all the potential growth in the interim.”

As the peaks and troughs of the stock market tend to be bunched closely together, it can be very difficult to time the market perfectly to avoid the worst days without missing out on the best. Research by fund shop Fidelity showed over the past 10 years, missing out on the 20 best days of the stock market, annual returns would be almost half (4.5pc) what you would have if you’d stayed invested (8.2pc).

Ms Coles said investors should not sell out in panic, but keep on investing through a monthly savings plan. “After a market fall you’ll get more for your money each month, and stand to benefit from future rises.”

The likelihood is markets will once again go through another 1929

It took America more than 25 years to recover from the crash of 1929