A lot of investors have been wondering whether another stock market crash will happen. There’s an easy answer to that.
Yes. It will.
Whether that’s a week, month, or years from now is the real question. However, many analysts are predicting that another market dip at least is expected in the near future. While we can’t predict to the moment when that could happen, there are some indicators that could tell us another stock market crash is coming.
By looking at what’s already happened, we can perhaps figure out what to look out for. After all, history repeats itself.
Stock market crash: the why
Of course, there’s the obvious: COVID-19. Almost as soon as COVID-19 became known globally, it seemed to hit almost every shoreline. As the virus spread, the markets fell. By mid-March, the S&P/TSX Composite was just one of the composite to have fallen nearly 40%. But the stock market crash goes far beyond that.
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While no one could’ve predicted the virus, many analysts believed a stock market crash was coming. Another factor was the oil and gas sector. The price of oil had been dropping for years, but then it came to a crashing halt, with Russia and Saudi Arabia creating an oil price war with the Organization of Petroleum Exporting Countries (OPEC).
Yet on top of all this was a poor economic situation that’s been getting worse since the last financial crisis. Unemployment was up, the U.S. Federal Reserve announced an inverted yield curve, and there has been a large increase in corporate indebtedness.
Gross world product rose from 84% a decade ago to 92%, about $72 trillion. As the economic climate worsens, companies can’t repay debts or refinance them, causing the restructuring we’ve seen.
There seems to now be some rose-coloured glasses in the markets today. The stock market crash is practically in the rear view to many, with a rebound underway for the last few months. But many analysts are warning that investors are falling into the “bear market trap.” Many believe the economic situation has changed when really, it hasn’t.
Part of the rebound has been from news that jobs have been added and a vaccine could soon be underway. But there isn’t a vaccine available yet, and hundreds of thousands of jobs don’t replace the millions of people in Canada with less or no work. This is why analysts believe the markets will continue to crash well into July.
What next?
The end of June means more earnings reports will come out — and more restructuring is likely. Overall, not much else has changed. Oil and gas prices are still weak. The coronavirus is still very much part of our everyday life. Countries are still struggling as debt climbs and businesses weaken.
Companies large and small are going to have to make further cuts if there is any hope of survival. This is likely to trigger poor earnings reports, and poor share price performance. So yes, I would say before the summer is out we are going to see another stock market crash.
How to prepare
There are a few things you can do to prepare before the next crash. First, sell stocks if you need money in the next year or so. Make sure you can pay your bills before anything else. Next, make sure your shares are in solid companies that will come out of a crisis well, even if that means a slump for now. And finally, have some cash on hand to invest in some more good companies should the market drop again.
The one stock I would look out for is Royal Bank of Canada (TSX:RY)(NYSE:RY). Royal Bank is the largest bank of the Big Six by market capitalization, and has witnessed solid performance thanks to expansion and highly lucrative investments.
If any stock will come out strong, it will be Royal Bank. Meanwhile, you get a solid 4.68% dividend yield, which actually increased last earnings report.
While we can’t totally predict the next stock market crash, we can always prepare. For now, hold steady and know no matter what the markets will rebound eventually.
The post Here’s When the Stock Market Crash Will Happen appeared first on The Motley Fool Canada.
Fool contributor Amy Legate-Wolfe owns shares of ROYAL BANK OF CANADA.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020
A stock market crash is an abrupt drop in stock prices, which may trigger a prolonged bear market or signal economic trouble ahead. Market crashes can be made worse by fear in the market and herd behavior among panicked investors to sell.
There were many causes of the 1929 stock market crash, some of which included overinflated shares, growing bank loans, agricultural overproduction, panic selling, stocks purchased on margin, higher interest rates, and a negative media industry.
A stock market collapse typically occurs when the economy is overheated, inflation is rising, market speculation is rampant, and there is significant uncertainty about the path of an economy.
The most straightforward answer to this question is that it actually disappeared into thin air, due to the decrease in demand for the stock, or, more specifically, the decrease in enough investors' favorable perceptions of it to move the price down by selling.
The money is lost only when the positions are sold during or after the crash. As we know, the stock market is volatile and if it falls today, there is no doubt that will also rise sooner than later. In such a situation, patience is important. What causes the Stock market to crash?
Lack of Portfolio Diversification: Over-reliance on a single stock or sector can be risky. If that stock or sector experiences a downturn, your entire portfolio may suffer. Diversify your investments across different stocks, sectors, and even asset classes to spread risk and potentially mitigate losses.
Many people blamed the crash on commercial banks that were too eager to put deposits at risk on the stock market. In 1930, 1,352 banks held more than $853 million in deposits; in 1931, one year later, 2,294 banks failed with nearly $1.7 billion in deposits.
Not everyone, however, lost money during the worst economic downturn in American history. Business titans such as William Boeing and Walter Chrysler actually grew their fortunes during the Great Depression.
Several individuals who bet against or “shorted” the market became rich or richer. Percy Rockefeller, William Danforth, and Joseph P.Kennedy made millions shorting stocks at this time. They saw opportunity in what most saw as misfortune.
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, or economic bubbles. They may occur amid the fallout of an economic crisis or major catastrophic event.
The average bear market cuts stock prices by 36% from peak to trough and these declines typically last over a year and a half. And stock market recoveries are even longer, taking almost two and half years on average.
Stock markets tend to go up. This is due to economic growth and continued profits by corporations. Sometimes, however, the economy turns or an asset bubble pops—in which case, markets crash. Investors who experience a crash can lose money if they sell their positions, instead of waiting it out for a rise.
During the Great Depression, there was deflation in most countries. That means that money was getting more valuable, not less valuable. People who had mortgages on their houses or farms were especially hard hit. They had to pay back their loans with dollars that were worth more than the dollars they had borrowed.
Staggering data reveals 90% of retail investors underperform the broader market. Lack of patience and undisciplined trading behaviors cause most losses. Insufficient market knowledge and overconfidence lead to costly mistakes.
The Stock Market Crash of 1929 occurred on October 29, 1929, when Wall Street investors traded some 16 million shares on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors.
The stock market crash of 1929 happened because the share prices had been rising at an unsustainable pace in the years prior to the crash. This was due to the overconfidence of the investors in sustained economic growth as well as the practice of buying shares on the margin.
According to stock market experts, selling in the broad market, weak global cues, selling by FIIs, upcoming US Fed meeting, and rising crude oil prices are one of the major reasons that have dragged the Indian share market.
Among the suggested causes of the Great Depression are: the stock market crash of 1929; the collapse of world trade due to the Smoot-Hawley Tariff; government policies; bank failures and panics; and the collapse of the money supply.
Introduction: My name is Kerri Lueilwitz, I am a courageous, gentle, quaint, thankful, outstanding, brave, vast person who loves writing and wants to share my knowledge and understanding with you.
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