Hiw Likely Is It That the Market Crash Again?

11 Min Read | Apr 6, 2022

For investors, the offset of 2022 has been quite a roller coaster. Worries about inflation and rising interest rates sent stocks tumbling in January, and Russian federation invading Ukraine in February sparked another wave of volatility for the stock marketplace.¹ ^, ²

All this fear and uncertainty about what's coming next has led to whispers about the potential of another stock market crash—the get-go since the start of the coronavirus pandemic back in 2020.

So, will we see the stock market crash during the rest of 2022? Let's take a await at some of the major factors (with a cool, level caput) to better empathise where the market is going.

What Is a Stock Market place Crash?

A stock marketplace crash is a sudden and big drib in the value of stocks that's caused by investors selling their shares quickly. That drives down the value of stocks for other shareholders, who likewise start selling their shares to effort to cut their losses. The terminate result is that people could lose a lot of the money they invested.

Craft a harder-working money programme with a trusted financial pro.

To help united states of america visualize how well the stock market is (or isn't) doing, we await at indexes similar the Dow Jones Industrial Boilerplate (DJIA), the South&P 500 and the Nasdaq. If y'all expect at a historical graph of one of these indexes, you can meet why we use the termcrash. It'southward like watching a plane take a nose dive.

Previous Stock Market Crashes: Examples From History

Throughout history, the market has gone through a lot of extreme ups and downs. When we look back, we're reminded that, aye, a market crash is a very difficult thing to become through, only it'south something we can and will overcome.

The Not bad Depression,1929: Over the class of a few days, the DJIA dropped nearly 25%.^three It took a little over a decade for the economy to get dorsum to predepression levels. It was the industry from World War Ii that helped go things support and running.
The Stock Market Crash, 1987: The market lost 22.6% of its value in one day known as Black Monday.^iv But within two years, it had recovered everything information technology had lost.⁵
September eleven, 2001:Terrorist attacks in our country caused a major hit on the marketplace, but it corrected itself super quick. Just1 month afterwards, the stock market had returned to September 10 levels and kept going up throughout the cease of 2001.⁶
The Nifty Recession, 2008:The DJIA lost more than than 50% of its value in a actually short fourth dimension.⁷ But later on a couple of years, the market was stronger than ever before—nosotros were basically in a balderdash market (a period of strong economical growth) from 2009 to just earlier the coronavirus crash.
The Coronavirus Crash, 2020: In March of 2020, the COVID-nineteen pandemic triggered the nigh rapid global crash in fiscal history. Withal, the stock market recovered ground pretty quick, and the yr closed with record highs.⁸

So, proceed your caput up. Chances are, you've already lived through at least two major crashes and recessions. It's part of the rhythm of life!

What Causes a Stock Market Crash?

A stock market crash is caused by two things: a dramatic drop in stock prices and panic. Here'due south how information technology works: Stocks are pocket-size shares of a visitor, and investors who buy them make a profit when the value of their stock goes up. The value and the price of those stocks are based on how well investors believe the company volition practise. And so, if they think the company they're invested in is headed for hard times, they sell that stock in an try to become out before the value drops.

The reality is, panic has simply as big of a role in a stock market crash every bit the actual economic issues that cause it.

Let'south walk through an example from the coronavirus pandemic that shows y'all just how powerful panic is. As news of the virus spread, grocery and convenience stores all across the globe sold out of toilet paper in a matter of days. Was there a toilet paper shortage? Well, yes and no. There wasn't a shortageearlier people started panicking. But when people lost their minds and started stocking upward on toilet paper, their actionscreated a shortage!

The same kind of panic can trigger a stock market crash. In one case investors encounter other investors selling off their stocks, they get pretty nervous. Then, stock values beginning to dip, and more investors sell their shares. Next matter you know, everyone is dumping their stocks, and the market is in a full-fledged crash. Look out below!

Our point here is this: The stock market place's value is 100% based on perception andprediction of the time to come. No wonder it feels like such a roller-coaster ride!

How Did the Coronavirus Crash Bear on the Stock Market?

Let'due south pretend we've got a time car to take us back to March of 2020 when the coronavirus was officially declared a pandemic (don't worry, we won't stay long). While people were rampage-watchingTiger King or swarming the supermarkets to purchase toilet paper, the global economy was in chaos. Supply chains ground to a halt. Unabridged industries shut down overnight. And the stock marketplace crashed—big time.

Back in the early on days of the pandemic, the stock market took united states of america all on a ride. Global markets (not just here in the U.S.) took a huge plunge, triggering a short-lived conduct market place (where the stock market falls by at least 20%) and an economic recession in the adjacent few months. If yous were checking your 401(k) during those days, y'all probably felt panicked as yous watched your savings disappear.

But later the initial nose dive in March, the market started to inch its way back to recovery. And by the time the New year'due south Eve ball dropped on December 31, 2020, the stock market had regained all of its lost basis—and then some! Did you grab that? All of the major indexes grew in 2020:

The S&P 500 gained 15.6%.
The Nasdaq gained 43.8%.
The Dow Jones gained 6.five%.⁹

dow jones industrial average

Looking dorsum, we tin run into that even the large, scary coronavirus crash didn't knock united states out for long. In fact, economists are now maxim the recession from the coronavirus crash was the shortest on record—only lastingii months!¹⁰

Will the Stock Market Crash in 2022?

Let's get one thing straight:No one can perfectly predict whether the stock market is going to crash during the rest of 2022. Simply think back to everything that has happened these past few years—you lot can't make this stuff up!

Then, will the stock market crash in 2022? All we can exercise is expect at the things that volition influence the market and your investments throughout the rest of the year. Let's dig into the specifics and where nosotros are now.

Reasons to Feel Cautious Virtually the Stock Market in 2022:

Loftier inflation: Between all those stimulus checks and supply chain issues, we've seen a dramatic increase in the price of, well, everything—particularly in grocery stores and at the gas pump—which has led to investors being cautious and consumers spending less.
Ascent involvement rates: In an endeavour to fight inflation, the Federal Reserve started raising interest rates in early 2022—and there could be more charge per unit hikes on the way soon. While this could deadening down aggrandizement, it could likewise trigger some other U.S. recession.¹¹
Tensions in Europe: Russia's invasion of Ukraine sent shockwaves around the world and could crusade investors heartburn over the adjacent few months. But if history shows us annihilation, the stock market usually recovers and is higher a twelvemonth afterward major geopolitical or historical events.¹² So hang tight.

Reasons to Feel Optimistic About the Stock Market in 2022:

COVID-19 fading: As the coronavirus crisis eased, putting the Delta and Omicron variants in the rearview mirror, we've already seen more optimism, motility and spending. At that place's a lot of pent-up free energy in our country, and people are ready to become out and about!
Unemployment falling: In March 2022, the unemployment rate improved to iii.half dozen%—that'due south the lowest level since February 2020 correct before the pandemic started to wreak havoc on the U.Southward. economy. That ways more people are continuing to wait for jobs and are finding them.¹³
New industries growing: Specific industries—tech, e-commerce and biotech—gained tons of footing during the pandemic and volition continue to grow and give investors reason to feel confident.¹⁴

We tin run numbers and make predictions all 24-hour interval long, but at the end of the day, nosotros accept no idea what'due south going to happen for the rest of 2022—no one does. And so allow'southward exist the kind of people who are prepared for anything the time to come has in store.

What to Exercise During a Stock Market place Crash

If the marketdoescrash again in 2022, remind yourself that yous lived through another crash but a few years ago. In the middle of anarchy, you lot've got to focus on what you tin command: your attitude, your outlook and your actions. Of class, a crash is scary. Yes, you'll have to brand some changes. Just with the right plan to move forward, you can and volition continue to make progress. Here are five ways you can answer to a stock market place crash:

1. Pass up to panic.

Similar we said earlier, panic can make the crash simply as bad equally the actual economic issues we're facing. Don't fall for information technology. Dealing with the unknown creates doubtfulness, and dubiousness left unchecked can become fearfulness. Choose to stay articulate and positive with your thoughts.

2. Cutting dorsum on everything.

You can't control how Congress makes their upkeep, but you tin can control howyou make your budget! If you lot lose your chore in the heart of an economic downturn, that ways it's time to cut outall unnecessary spending ofwhatever type.

Abolish your gym membership and avoid going on an online shopping spree! Meal plan to salve money. Use up the food that you have in your pantry and freezer before you even think near eating out at a restaurant.

Focus on funding the Four Walls before spending money on anything else:

Food
Utilities
Shelter
Transportation

iii. Follow the proven plan.

Rain or shine, the Infant Steps don't change. They're the proven programme for managing your coin, and they work! You lot demand to empathise which step you're on and then work the plan.

If you've lost your income: Focus on piling upward as much cash as you can. Y'all tin pause paying extra toward debt right now. As much as that stinks, don't worry—it'south not forever. When the tough time passes—and it will—then you can get-go back upwardly and pay extra on your debt.

If your income is stable: Continue right on working the Baby Steps similar y'all were, and don't pause your debt snowball. Stay on the program!

4. If you're investing, stay invested.

If you're on Baby Step 4, keep investing 15% of your income (unless you need to intermission for a while considering you lost your income). Lots of people are tempted to cash out their 401(one thousand) or common funds when the market takes a nose dive before they "lose any more money." Merely if y'all pull out now, you'll guarantee a loss. Stay plugged in and ride it out to give your investments more than time to grow and recover. Don't try to time the market. Focus onfourth dimension in the market.

5. Run across with an investment professional.

When there are big shifts in the market, schedule a phone call with your investment professional. You lot need specific communication for your state of affairs—your age, your funds, the types of retirement accounts y'all have, and which Baby Step you're on. Ask your pro if you demand to brand whatever changes because of the crash. Don't be agape to share what'southward on your mind. If yous're married, make certain your spouse is on the call! Make a plan for how you'll move forward together.

And past the fashion, if yous've been playing the investment game without a pro in your corner—don't. Connect with an investment professional in your area.

Stay Calm During a Stock Marketplace Crash

You lot've got to cull to be patient and call back long term here. No affair what the rest of 2022 has in store, remind yourself of the things yous know to exist truthful. You care about your family unit, your dreams and your future—and then make your investment decisions with those things in listen. You'll do a much better job of that if you stay positive and focus on the factors that y'alltin control.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published past Ramsey Press, likewise equally 2 syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More than.