Risk is the chance of something happening. The risk in the stock market is high because there are many factors that can affect the value of a company and it’s stock prices. The stock market crash is the biggest fear for the investors. So, why stock market crashes?. Here, we will see top 5 reasons for that and discuss many more things.
Topics Discussed In This Article:
- What Defines Stock Market Crash?
- Examples of Stock Market Crash
- Why Stock Market Crashes? Top 5 Possible Reasons of Stock Market Crash
- What to Do When Stock Prices are Falling Dramatically?
- Should You Sell Your Stocks When There is Dramatic Fall in Market?
- Investment Tips & Strategy When Stock Market Crashes?
- How to Predict the End of Bear Market and Start of Bull Market?
So, let’s collect detailed knowledge on stock market crash today. Now, let me explain each of the above mentioned topics one by one in detail.
What Defines Stock Market Crash?
The stock market crash is a sudden, dramatic, and often unexpected decline of the stock market. It can be caused by various factors such as panic selling, margin trading and excessive speculation.
Stock markets are volatile entities that are subject to fluctuating prices and sudden drops in value. This is due to the nature of the system as it allows for unlimited buying or selling of stocks at any time.
A stock market crash can occur for many different reasons, but it is often attributed to investor panic, as in the case of the Wall Street Crash of 1929.
Examples of Stock Market Crash
Perfect example of Stock Market Crash is the Wall Street Crash of 1929, the 2008 financial crisis and crash during Covid-19, pandemic.
Wall Street Crash of 1929:
The Wall Street Crash of 1929 is one of the most famous and devastating stock market crashes in United States history. It was a major event that led to the Great Depression.
On October 24th, 1929, after a period of speculation and rising stock prices, stocks on the New York Stock Exchange collapsed. There was average fell by 13% in Dow Jones Industrial . The collapse was caused by panic selling as investors began to fear that the economic boom had come to an end.
Financial Crisis 2008:
The 2008 financial crisis was one of the most significant economic events in the past decade. It was a result of the collapse of a financial system that had grown too large and created too many loans, many of which were risky. The crisis led to a global recession, with stock markets crashing around the world and credit markets freezing.
The crash on Wall Street was largely caused by reckless risk taking by banks and other financial institutions as well as by individual investors who gambled on risky investments at subprime mortgage rates without fully understanding their implications.
Covid-19 Pandemic in 2020:
In the year 2020, a new pandemic called covid-19 had been spreading across the world. The pandemic was causing high rates of mortality and morbidity in all age groups.
The stock market crash in 2020 during covid-19 pandemic has been a topic of discussion among many experts around the world. The health care industry, especially hospitals and pharmaceutical companies, are seeing a huge decline in their stocks. Many countries have had to increase their budget for healthcare as well as food production due to the population decrease caused by this pandemic.
Why Stock Market Crashes?
Stock market crashes are the most drastic and catastrophic events in the financial markets. They happen when investors sell stocks at a rate that exceeds the stock’s ability to be bought. This results in a rapid decline in share prices, which is also known as a “bear market”.
The causes of stock market crashes vary from country to country and can be attributed to various factors such as economic crises, bank failures, international trade wars, over-regulation of markets, etc. However, there are some common symptoms that precede them before they happen such as “overvalued equities” or “irrational exuberance”.
There are many other factors that can contribute to a stock market crash. One of the most common reasons for a crash is when people panic and sell their stocks because they think the prices will continue to drop. Other reasons include poor economic conditions, such as high unemployment, or political instability.
Top 5 Possible Reasons of Stock Market Crash
1) Economic Depression
The stock market crash during the Great Depression was a result of the Wall Street Crash of 1929. The crash led to a chain reaction that caused many banks to close, and people lost their jobs. This led to a decrease in consumer spending and demand for goods, which in turn led to more unemployment, more bankruptcies, and less investment.
2) Financial Crisis
The stock market crash during the financial crisis is a result of the lack of confidence in the economy. The stock market is a reflection of how people feel about the economy. When people lose confidence in the economy, they sell their stocks and this causes stocks to drop.
3) Continuous and Heavy Increase in Bank Interest Rate
The stock market crash can be caused by an increase in bank interest rates. This increase can be due to a number of factors, including inflation, unemployment and economic growth.
4) Economic Recession
Economic recession is a period of time when the economy slows down. This can cause a stock market crash because the demand for stocks decreases. The stock market crash is caused by the economic recession, which causes the demand for stocks to decrease.
5) Natural Disaster or Pandemics
Natural disasters and pandemics are great cause of stock market crash. Covid-19 pandemic is a great and better example of 2022 stock crash. This creates panic among investors and they sell at any lower price.
What to Do When Stock Prices are Falling Dramatically?
There is no easy answer to this question. But, one thing is for sure – you are not the only one who is worried about the stock market. In the past few months, stocks have been falling dramatically and a lot of people are panicking.
The first step in dealing with such a situation would be to find out why the stocks are falling so dramatically. There might be some underlying reason that we don’t know about yet or it could be just a temporary thing. Once we figure out what’s going on, then we can take appropriate action to protect our investments and make them profitable again.
Should You Sell Your Stocks When There is Dramatic Fall in Market?
No, you should not sell your stocks when there is a dramatic fall in the market. A lot of people often make the mistake of selling their stocks when the market falls. This is not a wise decision as one never knows when it will go up again. One should wait for at least a year or two before they sell their stocks.
A dramatic fall in the market does not necessarily mean that you should sell your stocks. You may want to wait for a year or two before making any decisions about selling your stocks.
Investment Tips & Strategy When Stock Market Crashes?
In order to avoid the pitfalls of investing, it is important to have a clear plan and strategy in place.
Investing in the stock market can be an exciting venture, but it can also be a risky one. When the stock market crashes, there are many things that investors need to consider before making any decisions. The first step is to assess your current portfolio and see if you are invested in stocks that are not performing as well as others. If so, you may want to sell these stocks and reinvest your funds into more stable or promising stocks.
If you have a diversified portfolio of stocks this will help you during any market downturns.
How to Predict the End of Bear Market and Start of Bull Market?
The end of a bear market is not an easy thing to predict. There are many factors that contribute to the end of a bear market. To predict the end of a bear market, one should consider the following factors:
1) The state of the economy and its impact on financial markets
2) The direction and speed of recovery in housing prices
3) The strength of corporate earnings
4) The level of inflation in the economy, and its impact on interest rates
5) Unemployment rate etc.
So, this is “why stock market crashes?”. I have discussed about almost every possible things on stock market crash. But, if you still have any confusion or any question regarding the topic, please leave a comment below. Thank You!
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