[Article issu de The Conversation, écrit par Eric Pichet, Professeur et directeur du Mastère Spécialisé Patrimoine et Immobilier, Kedge Business School ]
The term Krach (great noise in German) appears for the first time in stock market language during the fall in Viennese and Berlin markets of 1873. Since then it designates a sharp drop in courses mainly on the equity markets, but also on obligations (we then speak of bond krach) or even on currencies or raw materials, such as the Krach of Metal Meth in March 1980. Sugar in 1974 constitutes another example that inspired a film attributing – wrongly – the outbreak and then the collapse of the market to a speculative coterie.
Who decides when a fall becomes a crash?
Today, the term mainly designates a fall in equity markets and the stakeholders in the scholarship have gradually circumscribed the expression to any sudden drop in the market of more than 20 % compared to the most recent highest, and this in a very short time (from one to five sessions in general). On this yardstick, we will undoubtedly speak in Trump's Krach's stock markets. The United States is already talking about the “Trump Put” (the drop in Trump) or the customs duties in early April 2025 even if we have not reached exactly 20 % decline. Indeed, the Dow Jones fell by more than 45,000 points to the highest on January 30, 2025 (10 days after the inauguration of the new president) at 36,600 points on Monday 7, a correction of 18.67 %. The CAC 40 was capped at 8,200 points on February 18 before touching a low point at 6,764 points on April 7: a decrease of 17.5 %.
Why are we still referring to the 1929 Krach?
In the collective imagination, the Krach of 1929 is still the Archetypal Krach. Between October 22 and November 13, the Dow Jones lost 40 % with sessions like Thursday, October 24 (the famous black Thursday in stock market mythology) marked by a drop of 22 % during the session (but ultimately only 2 % in closing) or on Monday October 28, the worst session of the time with 13 % drop. Churchill then visiting the United States has also fueled the black legend of the Krach by launching the rumor (baseless) of a wave of speculators suicides by defenestrations.
Is this the greatest drop in the financial markets ever observed?
No. The worst day in the history of Wall Street remains on Monday October 19, 1987. After a drop of 4 % on Friday, October 16, the market was then an collapse of 22.6 % much higher than the black Monday of 1929.
If we still refer to the Krach of 1929 and less to that of 1987, it is essentially for its consequences on the real economy and the depression which followed, largely due to the errors of the 4 major central banks of the time (the Fed, the Bank of England, the Banque de France and the German Reichsbank). By maintaining their interest rates at levels above 4 %, they stifled the economy and transformed an inevitable recession due to the reversal of the American economic cycle after the excesses of the 1920s in a deep deflationary depression which it was very painful to get out.
The lessons of 1929-1933 were also retained by contemporary central bankers since the stock market crises of 1987, 2001 and especially from 2008 (subprime crisis) and 2020 (COVVID crisis) were not transformed into generalized depressions thanks to rapid, brutal and concerted decreases of the rates of the big central banks and even to the unpublished use of the quantitative eating In addition to unanimous contracyclic policies of states that have let their budget deficit spun.
How to explain the drop in Wall Street at the beginning of April? Are we going to attend a crash?
It should first be remembered that the current correction on the equity markets is not irrational, the courses that have reached stratospheric levels in the United States in early 2025 with the surge of the actions of the 7 magnificent and the miracle promises of artificial intelligence. American equity prices have, in fact, increased by 360 % since 2010 against 40 % for the rest of the world.
In the short term, the markets will evolve according to the erratic customs announcements of Donald Trump as shown by the violent technical recovery of the American scholarships on Wednesday, April 9. It is very likely that he is continuing a muddled strategy of commercial confrontation with the excess countries, at the forefront of which is China. Indeed, his obsession for customs duties and his cult of William Mc Kinley, the 25the President of the United States, famous for having strongly increased customs duties (before recognizing shortly before his assassination in office that it was a mistake) are very deeply rooted in him and constitute one of the rare cornerstors of his ideology. Under these conditions, it is difficult to see how America and its commercial partners could escape a recession and the financial markets, long -term reflections of savings that need stability, a Bear Market, a durably lower market.
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