Historical Moments When Stocks Soared Right Before the Market Crashed—and When You Should Worry

Bull markets can lull even cautious investors into believing markets will keep rising. Yet history shows that some of the market’s biggest surges may arrive just before its darkest plunges.

By recognizing the warning patterns, you can protect your portfolio from becoming another cautionary tale. Below, we take you through paradigmatic moments of boom to bust to help you know what to look for.

The Crash of  1929

The Lead-Up: The Roaring ’20s

Throughout the Roaring Twenties, the Dow Jones Industrial Average rose ten‑fold, powered by easy credit and the widespread practice of buying on margin (borrowing up to 90 % of a position). Optimistic pundits even declared that stocks had reached a “permanently high plateau.” 

The Crash

Selling pressure erupted on Black Thursday (Oct. 24), intensified on Black Monday, and culminated on Black Tuesday (Oct. 29), when the Dow collapsed another 12 %. Ticker‑tape backlogs forced traders to post prices hours late, amplifying panic. 

Aftermath and Lessons

The market would lose nearly 90 % by 1932, ushering in the Great Depression and prompting landmark reforms such as the Securities Act of 1933 and the formation of the U.S. Securities and Exchange Commission. Speculative leverage and inadequate disclosure emerged as chief culprits—warnings that still resonate. 

The Dot‑Com Bubble Burst (2000)

The Lead-Up: Rise of the Dot‑Com Era

From 1995 to early 2000, the Nasdaq soared over 400 % as investors chased any firm with “.com” in its name. Initial public offering prices could double in half a day, despite many companies having zilch in revenues. 

The Crash

The fever broke in March  2000, when the Nasdaq peaked above 5,000. As interest rate hikes, profit warnings, and a rotation out of tech hit, the index fell nearly 40 % in eight weeks and almost 80 % by late 2002.

Impact and Recovery

About $5 trillion in market value evaporated, bankrupting scores of start‑ups. The Nasdaq would take another 14 years to reach its dot-com-era peak.

The 2008 Financial Crisis

The Lead-Up: Housing‑Market Boom

Low interest rates and financial engineering turned U.S. housing into a speculative playground. Lenders issued sub‑prime mortgages that were repackaged into complex securities and snapped up by yield‑hungry investors—fueling a stock rally that pushed the Dow to a record high in October 2007. 

The Collapse

When adjustable‑rate mortgages reset and defaults spiked, the edifice crumbled. Bear Stearns imploded in March 2008; Lehman Brothers collapsed that September. The Dow logged its then‑largest point drop (–777) on Sept. 29, and global credit markets froze. 

Global Repercussions

World gross domestic product shrank for the first time in the post‑war era. Unemployment in the U.S. doubled, and trillions in wealth disappeared. Regulators responded with TARP, Basel III, and the Dodd‑Frank Act to curb systemic risk. 

Other Notable Boom-Bust Episodes

• The “Nifty Fifty“ (1973 to 1974): A select group of 50 blue chip stocks—including Coca-Cola (KO), International Business Machines (IBM), and Polaroid—commanded 40-to-60-times earnings multiples in 1972 before oil shocks and stagflation triggered the steepest Dow decline since the Great Depression.
• Black Monday (October 1987): After gaining about 44 % throughout 1987, indexes were trading at price‑to‑earnings ratios last seen in the 1920s. Program‑trading “portfolio insurance” dumped futures as prices slipped, turning a routine pull‑back into a record one‑day collapse—still the worst single‑session percentage loss on record.
• The COVID‑19 Crash (2020): The S&P 500 set an all‑time high in February 2020, but sudden pandemic lockdowns triggered the fastest‑ever fall to a bear market—down 34 % in just 33 days—before massive fiscal and Fed support sparked an equally rapid rebound.

Markets in the Mid-2020s

The S&P 500 notched more than 30 record closes in 2024, while AI‑centric hype pushed indices over 25%. Mega‑cap tech names now command valuations rivaling entire sectors. Meanwhile, corporate and household debt sit at historic highs, and real rates remain somewhat elevated.

Wall Street is divided: Morgan Stanley sees only muted gains ahead, but Goldman Sachs warns a demand shock or earnings miss could chop 20 % off equities. Keeping an eye on earnings breadth, credit spreads, and liquidity conditions may help investors gauge whether enthusiasm has outrun fundamentals. The situation with the Trump tariffs has had those in the market very tentative about prognostications about what to expect.

Warning Signs To Take Away From Market History

• Excessive leverage: Whether it is 1920s margin debt or 2000s mortgage‑backed leverage, borrowed money accelerates both gains—and losses.
• Sky‑high valuations: Shiller CAPE ratios in the top decile (often suggesting bubbles) have preceded most major crashes.
• Concentrated market leadership: Late‑cycle rallies often hinge on a handful of superstar stocks, masking broader weakness. 
• New‑era narratives: Overconfident claims that “this time is different” (e.g., the internet will rewrite economics or housing never falls) frequently precede a market demonstration that this time it isn’t.
• Policy or liquidity shifts: Rapid rate hikes, tariff shocks, or sudden tightening of credit can prick an overextended market. 

The Bottom Line

History doesn’t repeat, but it rhymes. Every major crash has had a cocktail of easy money, euphoric narratives, and overlooked risks. When valuations stretch far beyond fundamentals and leverage becomes the norm, even a small spark can ignite a conflagration. Staying diversified, limiting margin, and watching for the classic warning signs can help you participate in rallies, without being the last one dancing when the music stops.