Aug. 24, 2015 Flash Crash Part Of Wall St. History

August 22, 2016

August 24, 2015: It's a date that has earned its place in “notable days on Wall Street.” Nearly a year ago today, the S&P 500 dropped as much as 5.3%, capping off a weeklong rout that roiled markets around the world.

While not as devastating as something like Black Monday in 1987―when U.S. stocks dropped 20% in a single session―or when markets reopened after 9/11 on Sept. 17, 2001―the events last Aug. 24 were enough to etch that date into the history books.

Fueled by China-related economic fears, the drop in the stock market that day ended a period in which the market was uncharacteristically tranquil. Up until that point, the S&P 500 hadn't seen a correction (unofficially considered a sell-off of 10% or more) in about four years. That was the third-longest such streak in history.

Panic Attack

The drop on Aug. 24 quickly put an end to that, while pushing investors from a state of complacency to panic in one fell swoop. 

 

Chart courtesy of StockCharts.com

 

In the ETF world, the panic was especially palpable. Dozens of exchange-traded funds briefly traded well below the value of their underlying assets that day, fueling criticism that regulators and the industry weren't doing enough to protect investors.

Today, nearly a year after the Aug. 24 plunge, investors can now take a step back and look at the bigger picture. What, if anything, has changed since that tumultuous day―both on a macro level and in terms of the ETF industry?

China Still A Wild Card

The correction of August 2015 was the first of two major stock market sell-offs that were spurred on by events in China (the other was this past January: Investors Flood Safe Haven ETFs).

At the time, the prevailing narrative was that China's economy was in a free fall, and that a 1997-style Asian financial crisis was imminent. A year later, it's clear that those fears were unfounded. There has yet to be any financial or economic shock in China, and the country is seldom mentioned in the top financial headlines today.

But while a crisis has yet to hit, there are many open questions regarding the state of China's economy. The Chinese government took a number of measures―including banning short-selling in the country's stock market, halting the trading of more than 1,000 stocks and cutting interest rates six times in a year―to stabilize the situation.

 

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