what will cause the stock market to crash

6 Things That Could Cause a Stock Market Crash

1. Speculation. Many market crashes can be blamed on rampant speculation. ...
2. Excessive leverage. When things are going well, leverage (a.k.a. ...
3. Interest rates and inflation. Generally speaking, rising interest rates are a negative catalyst for stocks and the economy in general.
4. Political risks. ...
5. Tax changes. ...
6. Panic. ...

Full Answer

What's really causing the stock market to crash?

Nov 22, 2021 · A market crash could be caused by one or more of the following factors: A sudden geopolitical event. Rising inflation and interest rates. Lowering of earnings estimates. Overvaluation. An economic...

What are the factors affecting a stock market crash?

Apr 13, 2018 · There Was No Single Cause for the Turmoil Most economists agree that several, compounding factors led to the stock market crash of 1929. A soaring, overheated economy that was destined to one day...

What is keeping the stock market from crashing?

Feb 25, 2022 · What caused the 1929 stock market crash? The many bullish investors of the Roaring Twenties fueled a bubble in the stock market. The perennially rising stock prices gave consumers a sense of...

What actually constitutes a stock market "crash"?

Feb 28, 2022 · The term stock market crash refers to a sudden and substantial drop in stock prices. Stock market crashes are often the result of several economic factors, including speculation, panic selling,...

What triggers a stock market crash?

What are 3 reasons the stock market crashes?

Is it possible for the stock market to crash?

What was the biggest stock market crash?

Who profited from the stock market crash of 1929?

Is the market going to crash 2022?

What will happen if market crashes?

What are some warning signs of the stock market crash?

Key Points

Although the stock market is a money machine over the long run, crashes and corrections are a normal part of the investing cycle.

The S&P 500's historic bounce from the March 2020 bottom could come to an abrupt halt this year

Since the benchmark S&P 500 ( ^GSPC -1.84% ) bottomed out in March 2020, investors have been treated to historic gains. It took less than 17 months for the widely followed index to double from its closing low during the pandemic.

1. The spread of new COVID-19 variants

Arguably the most glaring concern for Wall Street continues to be the coronavirus and its numerous variants. The unpredictability of the spread and virulence of new COVID-19 strains means a return to normal is still potentially a ways off.

2. Historically high inflation

In a growing economy, moderate levels of inflation (say 2%) are perfectly normal. A growing business should have modest pricing power. However, the 6.8% increase in the Consumer Price Index for All Urban Consumers (CPI-U) in November represented a 39-year high in the United States.

3. A hawkish Fed

A third reason the stock market could crash in 2022 is the Fed turning hawkish.

4. Congressional stalemates

As a general rule, it's best to leave politics out of your portfolio. But every once in a while, what happens on Capitol Hill needs to be closely monitored.

5. Midterm elections

Once again, politics isn't usually something investors have to worry about. However, midterm elections are set to occur in November, and the current political breakdown in Congress could have tangible implications on businesses and the stock market moving forward.

What causes a market crash?

A market crash could be caused by one or more of the following factors:

What caused previous stock market crashes

Usually, we need a trigger for a market crash. In the early 2000s, it was the dot-com crash followed by the 9/11 attacks. In 2008, it was the bursting of the housing market bubble. In the 2018 mini-crash, Trump’s trade war spooked investors. Similarly, in the first quarter of 2020, COVID-19 pandemic uncertainty led to a crash in markets.

What could cause the next stock market crash?

While a black swan event like the COVID-19 pandemic is nearly impossible to forecast, we see a lot of other factors that could lead to a market crash. Starting with geopolitics, prospects of Russia invading Ukraine or China trying to annex Taiwan by force are two potent risks.

Is there a stock market bubble?

There are always sections of bubbles in markets. Earlier this year, there was a SPAC bubble. Now, at least some of the EV names appear to be in a bubble. There isn't another way to justify the over $150 billion market cap that Rivian managed to achieve days after its IPO than to term it as FOMO (fear of missing out) and irrational exuberance.

Is a stock market crash imminent?

A market crash isn't imminent. The market has self-correcting properties and some of the speculative activity, especially in meme stocks and SPACs, has been addressed by market forces only.

Why did the stock market crash make the situation worse?

Public panic in the days after the stock market crash led to hordes of people rushing to banks to withdraw their funds in a number of “bank runs,” and investors were unable to withdraw their money because bank officials had invested the money in the market.

What happened to stocks during the stock market crash?

Some experts argue that at the time of the crash, stocks were wildly overpriced and that a collapse was imminent.

What was the cause of the 1929 stock market crash?

Most economists agree that several, compounding factors led to the stock market crash of 1929. A soaring, overheated economy that was destined to one day fall likely played a large role.

What was the worst economic event in history?

The stock market crash of 1929 was the worst economic event in world history. What exactly caused the stock market crash, and could it have been prevented?

Why did people buy stocks in the 1920s?

During the 1920s, there was a rapid growth in bank credit and easily acquired loans. People encouraged by the market’s stability were unafraid of debt.

What percentage of stock value can you put down?

The concept of “buying on margin” allowed ordinary people with little financial acumen to borrow money from their stockbroker and put down as little as 10 percent of the share value.

When did the Dow go up?

The market officially peaked on September 3, 1929, when the Dow shot up to 381.

What was the stock market crash of 1929?

The stock market crash of 1929 followed an epic period of economic growth during what's now known as the Roaring Twenties. The Dow Jones Industrial Average ( DJINDICES:^DJI) was at 63 points in August 1921 and increased six-fold over the next eight years, closing at a high of 381.17 points on Sept. 3, 1929. That September day marked the peak of the ...

What collateral did the banks use to finance the stock buying spree?

In the wake of the crash, the banks and other lenders that financed the stock-buying spree had little means to collect what they were owed. Their only collateral was stocks for which the amount of debt outstanding exceeded the stocks' worth. These institutions had little choice but to begin limiting all other forms of lending, including credit for consumer purchases.

What happens when investment trusts are heavily leveraged?

Some investment trusts, themselves heavily leveraged, also invested in other similarly leveraged investment trusts , which, in turn, invested in other investment trusts employing the same strategy. As a result, each of these trusts became inordinately affected by the movements of others' stock holdings. When the stock market crashed in September ...

What percentage of a stock is paid in margin accounts?

Investors with margin accounts are usually required to pay only 10% of a stock's purchase price initially; the stock itself serves as collateral for the remaining 90%. As investors increasingly used margin accounts to buy stocks that they could not afford, new money flowed rapidly into the stock market, causing stock prices to inflate.

What was the total non-corporate debt in 1929?

By September 1929, total noncorporate debt in the U.S. amounted to 40% of the nation's Gross Domestic Product (GDP). At the same time that readily available credit was fueling consumer spending, the buoyant stock market gave rise to many new brokerage houses and investment trusts, which enabled the average person to buy stocks.

What was the cause of the Great Depression?

The stock market crash of 1929 was a cause, but not the sole driver, of the Great Depression. The 1929 crash served as a critical catalyst that triggered the start of that devastating economic downturn. The bursting of the stock market's bubble unleashed a cascade of market forces that plagued the U.S. economy for years after 1929. The economy likely could have recovered more quickly in those ensuing years had the combined effects of excessive borrowing, business closures, and mass layoffs not exacerbated and prolonged the crisis.

What happened to the economy with less credit?

With less available consumer credit, a lot fewer people were able to purchase big-ticket items, causing consumer spending to decline sharply. Businesses shrank or closed, resulting in millions of people losing their jobs and becoming unable to repay their own debts to the banks. The banks, too, failed by the thousands as many of their borrowers defaulted on their loans.

What was the cause of the 1929 stock market crash?

The primary cause of the 1929 stock market crash was excessive leverage. Many individual investors and investment trusts had begun buying stocks on margin, meaning that they paid only 10% of the value of a stock to acquire it under the terms of a margin loan.

What was the worst stock market crash in history?

The worst stock market crash in history started in 1929 and was one of the catalysts of the Great Depression. The crash abruptly ended a period known as the Roaring Twenties, during which the economy expanded significantly and the stock market boomed.

What happened on Black Monday 1987?

Black Monday crash of 1987. On Monday, Oct. 19, 1987, the Dow Jones Industrial Average plunged by nearly 22%. Black Monday, as the day is now known, marks the biggest single-day decline in stock market history. The remainder of the month wasn't much better; by the start of November, 1987, most of the major stock market indexes had lost more ...

Why did the Dow drop in 1929?

The Dow didn't regain its pre-crash value until 1954. The primary cause of the 1929 stock market crash was excessive leverage. Many individual investors and investment trusts had begun buying stocks on margin, meaning that they paid only 10% of the value of a stock to acquire it under the terms of a margin loan.

Why did the stock market recover from Black Monday?

Because the Black Monday crash was caused primarily by programmatic trading rather than an economic problem, the stock market recovered relatively quickly. The Dow started rebounding in November, 1987, and recouped all its losses by September of 1989.

When did the Dow Jones Industrial Average rise?

The Dow Jones Industrial Average ( DJINDICES:^DJI) rose from 63 points in August, 1921, to 381 points by September of 1929 -- a six-fold increase. It started to descend from its peak on Sept. 3, before accelerating during a two-day crash on Monday, Oct. 28, and Tuesday, Oct. 29.

When did the Dow lose its value?

The stock market was bearish, meaning that its value had declined by more than 20%. The Dow continued to lose value until the summer of 1932, when it bottomed out at 41 points, a stomach-churning 89% below its peak. The Dow didn't regain its pre-crash value until 1954.