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Is the big stock market crash coming?

Masroor Alam
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stock market crash is a sudden dramatic decline of stock prices across a major cross-section of a stock market, resulting in a significant loss of paper.

Nifty has gained as much in the last 1.5 years (5700 points) as it did in the 6 years before that. While even its 2nd biggest listing, TCS, grew by only 6% in this current period, compared to 100% over the previous 6 years. GDP growth meanwhile dropped compared to previous years.


Stock market Crash 2022
Image source - letMe-Ask Media house

The stock market ideally should be a reflection of how well big industries (that are listed) across different important sectors are growing. Which in turn reflects growth in the underlying economy and strength of the country. Not a single company has shown that much revenue or profit growth in the past 1.5 years, as they did in the 6 years before that. And we all know India hasn’t struck oil.


To a normal logical find - this sounds like a miracle. And we all know what miracles are. Now stock market booms for exactly two other reasons - Investors feel hopeful about the future, or another Harshad Mehta is playing stock right now.


So, a crash is coming. We don’t know if it is in 1 week, 1 month or 1 year. Heck, maybe even 2. No one alive can predict the timing. But it sure as hell is coming.


Data 

GDP Vs Stock market Growth

Nifty grew 5700 points from 12k in Feb ’20 to 17.8k as of Sep ’21 (today)

Before that, it took Nifty 6 years to grow by the same range of 5700 points - 6.3k in Mar ’14 to 12k in Feb ‘20


Major Stock market Crash across the world

8 of the biggest stock market crashes in history - and how they changed our financial lives

8 Biggest stock market Crash
Image source - Business Insider

1. The Panic of 1907

2. Black Monday and Tuesday, Oct. 28-29, 1929
3. Black Monday, October 19, 1987
4. Japanese Asset Bubble Burst, 1992
5. Asia Financial Crash of 1997 (aka Tom Yum Kung Crisis)
6. Dot-Com Bubble Burst, 2000-02
7. Subprime Mortgage Crisis, 2007-08
8. COVID-19 crash, March 16, 2020

COVID-19 crash, 16 March 2020

By the beginning of 2020, COVID-19 had spread widely in China and then to Europe - notably Italy - and to the US, where restaurants and nonessential stores closed to stem the tide of infection.


As investors realized the extent to which the coronavirus could spread and negatively affect the economy, the stock market began to quiver. On March 16, with mandatory lockdowns being announced, the Dow Jones Industrial Average lost nearly 13% and the S&P 500 dropped 12%. (During this crash NSE and Sensex crash 45%)


Subprime Mortgage Crisis, 2007-08


Investors bought up mortgage-backed securities and other new investments based on these "subprime" loans. Eventually, though, the inevitable happened: Burdened by debt, borrowers began to default, property prices fell, the investments based on them dived in value. Wall Street noticed, and in 2008 the stock market started to decline. By early September, it was down almost 20%. On Sept. 15, the Dow Jones Industrial Average dropped nearly 500 points.

Dot-Com Bubble Burst, 2000-02

In the 1990s, with the internet revolutionizing professional and personal life, stocks in companies with ".com" after their names surged. Twelve large-cap stocks rose more than 1,000%; one, chipmaker Qualcomm, saw its stock increase more than 2,500%. Investors gobbled up shares of tech IPOs but seemed unaware that not every company tied to the World Wide Web could sustain its growth - or even had a viable. "A new economy was being born and it was hard to place a value on it," Chandler says. But finally, people did - aided by some tighter money policies imposed by the Federal Reserve. They started to sell. By October 2002, the tech-heavy Nasdaq had fallen more than 75% from its March 2000 crescendo of 5,048.62.


Asia Financial Crash of 1997 (aka Tom Yum Kung Crisis)


Under pressure because the country borrowed too many US dollars, Thailand saw its baht currency collapse on July 2, 1997, declining 20% in value, and spurring debt and defaults that sent a ripple effect throughout several Asian financial systems.


Japanese Asset Bubble Burst, 1992


Japan's real estate and stock markets had flown to unprecedented heights in the 1980s. At first backed by fundamental economic growth, the spiral had become speculative by the decade's end. In 1992, the bubble of inflated real estate and stock prices finally burst.


Black Monday, October 19, 1987


Sinking oil prices and US-Iran tensions had turned the market pessimistic. But what led to the wipeout on Oct. 19 - eerily close to the 58th anniversary of the 1929 crash - was the relatively new prevalence of computerized trading programs that allowed brokers to place bigger and faster orders. Unfortunately, they also made it difficult to stop trades soon enough once prices started to plummet. Ultimately, The Dow and S&P 500 each dropped more than 20% and Nasdaq lost 11%. International stock exchanges also tumbled.


Black Monday and Tuesday, Oct. 28-29, 1929


For nearly a decade, the stock market had kept rising in a speculative spiral. Overproduction in factories and a Roaring 20s giddiness led consumers to take on too much debt and believe financial instruments would climb perpetually higher. Finally, catching on to the overheated situation, seasoned investors began cashing out. Stock prices dropped first on the 24th, briefly rallied - and then went into free fall on Oct. 28-29. The Dow Jones Industrial Average dropped 25% in those days. Ultimately, the market lost 85% of its value.


The Panic of 1907


A group of investors borrowed money from banks to finance an effort to corner shares of United Copper Company. UCC went bust under the weight of speculation, and then other firms followed: Stocks lost 15% to 20% of their value. Public confidence in banks fell and depositors rushed to withdraw their money, causing ruinous runs.

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