A stock market crash is a sudden and dramatic decline in stock prices. It is often caused by panic selling, which is when investors sell their stocks out of fear that the market will continue to drop. This can cause a domino effect, leading to even more selling and resulting in an even bigger decline in stock prices. While a stock market crash can be scary, finance experts like Kavan Choksi Singapore say it is important to remember that the market has always recovered from these declines in the past and will likely do so again in the future.

The Causes of a Stock Market Crash

There are many different factors that can lead to a stock market crash. One of the most common causes is panic selling, which occurs when investors sell their stocks out of fear that the market will continue to drop. This can cause a domino effect, leading to even more selling and resulting in an even bigger decline in stock prices. Other causes of stock market crashes include natural disasters, terrorist attacks, and war. Other times, the market may just correct itself after a period of irrational exuberance, which is when prices become too high and are not supported by underlying fundamentals.

What Happens During a Stock Market Crash?

During a stock market crash, there is usually a lot of volatility, which is when prices fluctuate rapidly. This can be very confusing and stressful for investors who are trying to decide whether to sell or hold onto their stocks. A lot of times, the decision comes down to emotion rather than logic. Fearful investors may sell their stocks at below-market prices out of panic, while others may hang onto their stocks, hoping that the market will rebound. Generally, it is best to consult with a financial advisor before making any major decisions during a stock market crash.

What Happens After a Stock Market Crash?

It is important to remember that while stock market crashes can be scary, they are also relatively rare events. In fact, since 1900, there have only been 29 declines of 10% or more in the Dow Jones Industrial Average—which is one of the most commonly used measures of the US stock market. The good news is that the US stock market has always recovered from these declines in the past and will likely do so again in the future. In fact, historical data shows that over time, the stock market has always trended upwards. So, while a stock market crash can be painful in the short-term, patience is often rewarded in the long run.

Bottom Line

A stock market crash is a sudden and dramatic decline in stock prices. It often occurs because of panic selling—when investors sell their stocks out of fear that the market will continue to drop. This can result in even more selling and an even bigger decline in prices. However, it is important to remember that while stock market crashes can be scary events, they are also relatively rare occurrences. The good news is that the US stock market has always recovered from these declines in the past and will likely do so again in the future.