Do we know when the stock market will 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 the stock market will crash, I need to tell you a little secret: It did in 2020, which is why the market has recovered from that crash and much more.
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When Will the Stock Market Crash?
When will the stock market crash in 2020? I’ve got news for you. The crash began at the end of February because of the COVID-19 pandemic. With unemployment skyrocketing and shelter-in-place orders drying up, the economy has 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 the Dow Jones Industrial Average 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 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, company performance goes hand in hand with the economy’s growth rate. Similarly, when one company has a weakness, there may be a weakness in the others and the U.S. economy.
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 consider the market capitalization of its component companies 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 equal points.
What just happened to the DJIA? What does it tell us about when the stock market will crash? Check out our penny stocks list for trading ideas during a crash.
When Will the Stock Market 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).
Two more record-setting points preceded its drops on March 12 and 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 the stock market will crash in our trade room every day. Not only when it’ll crash but how to trade when it does.
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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. 72% of economists predicted a stock market crash by the end of 2021. That’s 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 are 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 nobody saw coming changed everything.
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 labeled 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. It was a 9.99% drop and the sixth-worst percentage drop in history.
Until Black Monday.
On March 16, 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 and those they provide services to.
Life Before Black March 2020
Life was good.
Before that fateful day in March, Wall Street was experiencing its longest bull market. Before 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 just a few weeks, the Dow closed down 20%, signaling 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 care about time.
However, when the yield curve inverts, we need more return in the short term than the long term. For those 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 exceeds the long-term future risk.
How Likely Is Another Great Depression?
When considering when the stock market will crash, it’s hard now to wonder how likely another Great Depression is. With the economy at a standstill 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 in the 1920’s.
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.
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 2008, 2001, 1991, and 1981 recessions – it was inverted.
In many 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 that the government orders us to stay home.
Even if a recession is triggered, there is hope. The stock market is on sale, and if you have the right strategies, now is the right time to buy.
Aside from the clear point that COVID-19 directly threatens 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.
Frequently Asked Questions
With 2024 being an election year, the stock market will likely NOT crash.
Inflation is high, the Fed is considering rate hikes, and the market is still hitting all-time highs. Is the market being manipulated, or is it strong? We may not see a crash yet, but keep an eye on it as we can't go like this forever.
If you're in bullish investments, you'll lose money. But that doesn't mean forever. Usually, they recover, but it may take some time.
