Why Does the Stock Market Crash?
February 2018 has been a bad month for the United States stock market. In just two consecutive trading days, the market crashed by more than 1500 points. As a result, all the incremental gains that were made in January 2018 were simply wiped out within these two days. It would be incorrect to say that the fall in markets came as a surprise to anybody. The market had been extremely bullish for the past few months. It had reached new heights which were earlier thought to be impossible. Hence, there were many skeptics in the stock market who believed that downfall was just around the corner. They also believed that only a catalyst incident was required which would then unleash the pent-up supply and cause a market crash.
In this article, we will have try and understand the common catalyst events that ultimately lead to a downfall in the stock market prices.
Crash vs. Correction
Before we begin our analysis, it is essential to differentiate between a crash and a usual correction. Every small downfall in the equity markets cannot be termed as a crash. A crash happens suddenly and the magnitude is higher. Hence, if the stock market value drops by double digits in a matter of days, it can be called a crash. However, if there is a gradual reduction spread out over several days and even weeks, then it cannot be called a crash. The correct term to use would be market correction
Common Factors That Cause Market Crash
As an investor, it is necessary to ensure that an eye is kept on the above-mentioned parameters. These events do not happen suddenly. Instead, they just appear to happen suddenly when in reality the trouble is brewing for a long time before the bubble finally bursts.
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