Do we know when will the stock market crash? With all the craziness that’s been happening lately, it feels like a big crash is coming right? Or has it happened? If you’re wondering when will the stock market crash, I need to let you in on a little secret: It did in 2020, and hence why the market has recovered all of that crash and much more.
Table of Contents
- When Will the Stock Market Crash?
- Can You Predict a Recession?
- How Likely Is Another Great Depression?
When Will the Stock Market Crash?
- When will the stock market crash in 2020? I’ve got news for you. The crash began back at the end of February because of the COVID 19 pandemic. With unemployment skyrocketing and shelter in place orders, the economy has all but dried up. Resulting in a stock market crash.
Why the Dow Matters
When will the next stock market crash be? To put the stock market crash into perspective, you must understand what the Dow Jones Industrial Average is and why it matters.
Often referred to as “the Dow,” the DJIA is a price-weighted index that tracks 30 large, publicly-owned blue-chip companies trading on both the New York Stock Exchange (NYSE) and the NASDAQ.
The index represents the major areas of the U.S. economy: industrials, transportation, and utilities.
Typically, the performance of companies goes hand in hand to the growth rate in the economy. Similarly, when there is a weakness in one, there may be weakness coming in the others and, in the U.S economy, in general.
To many, a strong Dow means a strong economy while a weak-performing Dow means a slowing economy. Here’s our Dow Jones Stocks list for you.
How Is the Dow Calculated?
The critical point to remember about the DJIA is that it is not a weighted arithmetic average. Also, it doesn’t take into account its component companies’ market capitalization as the S&P 500 does.
Instead, it reflects the sum of the price of one share of stock for all the components, divided by the divisor. Likewise, stocks with higher share prices are given greater weight in the index.
Thus, a one-point move in any of the component stocks will move the index by an equal number of points.
What just happened to the DJIA? What does it tell us about when will the stock market crash? Check out our penny stocks list for trading ideas during a crash.
A Very Black March
Monday, March 16, 2020, will forever be seared into the minds of traders and investors. That date marked the largest single point plunge of the Dow Jones Industrial Average (DJIA) in history.
Two more record-setting points preceded it drops on March 12 and March 16, respectively. The stock market crash of 2020 began on Monday, March 9, 2020.
Unbridled global fears about the spread of COVID-19, plunging oil prices, and a looming recession provided the necessary ingredients for this perfect storm of events.
Only two other dates in the U.S. history books had more unsettling one-day percentage falls. Rewind to the so-called Black Monday on October 19, 1987, with a 22.6% drop, and December 12, 1914, with a 23.52% fall.
We’ve been dealing with when will the stock market crash in our trade room everyday. Not only when it’ll crash but how to trade when it does.
Can You Predict a Recession?
- Can you predict a recession? Yes and no. Sound confusing? Charts tell us a lot about what a market is going to do. In fact, 72% of economists predicted a stock market crash by the end of 2021. That’s kind of a long time frame. That tells us economists knew it was coming but the exact day was still a mystery. Charts don’t lie. Patterns set up to give clues to market movement. Anything can change a market’s direction. The economy looked strong going into February and then a global pandemic no body saw coming changed everything.
The Largest Stock Market Crash in History
It all began on Monday, March 9, 2020. On that fateful day, the Dow fell 2,013.76 points to 23,851.02.3, a 7.79% plunge. What some labelled as Black Monday, was, at that time, the Dow’s worst single-day point drop in U.S. market history.
Until three days later.
On Thursday, March 12, the Dow fell a record 2,352.60 points to close at 21,200.62. All toll, it was a 9.99% drop and the sixth-worst percentage drop in history.
Until Black Monday.
On March 16th, 2020, the Dow broke a record low, losing 2,997.10 points to close at 20,188.52. This 12.93% plunge topped the 1929 Black Monday slide of 12.8%.
I’ll give you a minute to let that sink in. It’s affected everyone; including stock trading services as well as those they provide services to.
What Life Was Like Before Black March 2020?
Life was good.
Before that fateful day in March, Wall street was experiencing it’s longest bull market ever. Prior to the crash, on February 12, the Dow had just reached its record high of 29, 551.42.
But you know what they say, all good things must come to an end. And a spectacular end, they did with eleven years of a bull market came crashing down on us.
In a short span of just a few weeks, the Dow closed down 20%, signalling the start of a bear market. In the end, more than $2 trillion got wiped from American stocks, and global equities saw $6.3 trillion get obliterated.
Investing Is a Long Game, Sort Of
We, as investors, rely on the power of time to compound our returns. In fact, we don’t really care about our short term returns because investing is a long game.
We care about time.
However, when the yield curve inverts, it means we need more return in the short term than the long term. For those of you unfamiliar with an inverted yield curve, it’s an abnormal situation where the return on a short-term Treasury bill is higher than the Treasury 10-year note.
Situations like this only occur when the near-term risk is greater than the long-term future risk. Click here to learn more about investing in the market safely.
How Likely Is Another Great Depression?
- When thinking about when will the stock market crash it’s hard now to wonder how likely another Great Depression is. With the economy at a stand still and unemployment rising will that cause a global depression? The answer is most likely no. With the internet and the ability to work from home, we can adapt better than they could in the 1920’s. Checkout our post on the biggest stock market crashes.
On March 9, the Yield Curve Inverted
Why is this important? It meant investors needed a higher rate of return on the one-month Treasury bill than on the 10-year note.
I hate to make assumptions, but it was most likely because they are so worried about the impact of the coronavirus in the coming months.
If you want trading ideas, make sure to follow our real time stock alerts.
Is a Recession Next?
Not to be the bearer of bad news, inverted yield curves often predict a recession. Just look at the curve before the recessions of 2008, 2001, 1991, and 1981 – it was inverted.
In a lot of cases, a stock market crash, combined with a pandemic and an inverted yield curve, will cause a recession. Many businesses have been brought to their knees as people stay home for fear of catching the disease. Not to mention the fact that the government is ordering us to stay home.
Even if a recession is triggered, there is hope. In fact, the stock market is on sale, and if you have the right strategies in hand, now is the right time to buy.
Take our free online trading courses to learn how to trade the market in any condition.
Aside from the clear and obvious point that COVID-19 is a direct threat to our well-being, it’s also a threat to people’s financial well-being.
But it doesn’t have to be.
Emotions are high, which means volatility is high. Volatility drives short term movements in the market, and that’s your chance to capitalize on the large swings.