9 Reasons for a Stock Market Crash
Stock market crashes have far-reaching consequences for both investors and society as a whole. As stock prices plunge, investors’ portfolios lose value, and firms with publicly-traded shares find it more difficult to raise funds. India and the global markets have witnessed and experienced numerous stock market crashes in the past, where the severity of each crash has been different. For instance, the 2020 Coronavirus stock market crisis only lasted a few months. On the other hand, the 1929 US stock market crash, known as the Great Depression, lasted ten years and was the biggest economic downturn in American history. Equities had lost over 90% of their value by the time it ended. The Financial Crisis of 2007-08 was another jolt to global economies. It was a result of the collapse of the US housing market and contributed to the Great Recession. The S&P 500 index dropped 51.9% in value, and the Sensex also fell by around 52%. What is a stock market crash? Different people have different meanings for a share market collapse. Mostly, people believe that when a stock market index loses more than 10% of its value in a single day, it is a crash. However, a few investors identify a crash as a significant or dramatic loss in the stock market’s value and individual share
values over a short period. A stock market crash, in a nutshell, is a dramatic fall in its overall value. What are the reasons for a stock market crash? 1. Economic conditions 2. Monetary policy 3. Global economy 4. Natural/Man-made disasters 5. Speculation 6. Geopolitical factors 7. Excessive leverage 8. FII sell-offs 9. Panic selling The most important way to safeguard your investments is to have a grip on your emotions during phases of massive market fluctuations. Get more detailed tips to pull through in a stock market crash in our article on ‘How To Control Your Greed In A Bull Market And Gain Confidence In A Bear Market’ on the Teji Mandi blog. In conclusion Markets have a natural upward and downward cycle. While stock market crises can be devastating, economies recover. This is a compelling argument for investing in the long term. Building a strong portfolio that can withstand market drops and provide a healthy mix of assets will help you get through the tough times. Read more about Reasons for a Stock Market Crash