5.3.2 Share prices do go up and down

You’ve probably heard many times the adage that shares can go up and down in value. Sometimes these movements are very sharp and sudden – particularly when shares fall in price. Over the years there have been times when share prices have plummeted. You may have heard of the Wall Street Crash in 1929 when the US stock market plummeted. The pop group 10cc had a hit song, ‘The Wall Street Shuffle’, about the vagaries of share prices in the 1970s.

Shares also collapsed in value worldwide in October 1987, and the video includes footage on what quickly became known as Black Monday. Share prices also fell around the world during and after the 2007 financial crisis.

Download this video clip.Video player: ou_futurelearn_money_vid_1015.mp4

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ANNOUNCER

The 1 o'clock news from the BBC with Michael Buerk.

MICHAEL BUERK

Good afternoon, it's been another disastrous morning on the London stock exchange. At one point 30 billion pounds was wiped off share values in 3 minutes.

STEPHANIE FLANDERS

We're talking here in the UK about a possible triple dip recession and yet the FTSE at the highest it's been in 5 years, the US market up nearly 10% since the start of the year. I think there's a few things going on, there is some optimism about the real economy really in the US, a feeling that there's a lot of business opportunities in the US and that those will continue despite the arguments between the president and congress over the budget.

We had a bit of good news about the UK economy today, that all important service sector showing much more strength than we'd expected, so there's some of that, but I think the main thing is all the signals that have been coming from central banks; from the US central bank, from the Bank of England, saying that they were going to carry on being very supportive ,we were going to have this very low interest rates loose monetary policy, that means lots of money sloshing around, still, in the global economy, investors know that it needs to find a home and they think asset prices are going to keep going up. But you can't get round it, I mean the financial markets have definitely got quite far ahead of where the real economy is, the governor of the Bank of England voiced some concern about that the other day. We want the real economy to catch up with where the financial markets are, otherwise there's a fear that markets will then come back down to Earth.

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More recently, shares have staged a recovery as the world economy has started to recover from the financial crisis. The second part of the video provides covers this rise in share prices in 2013.

This recovery gathered further pace in 2017 with many stock market indices around the world – including the UK’s FTSE-100 – hitting all-time highs. Are we, though, close to the point where another of those sharp drops in share prices occurs?