A stock market crash is the sudden fall in stock prices across a section of the stock market. This causes a huge loss in paper wealth. Stock market crashes are caused by overvaluations that are not backed up by results.
There are tell tale signs when a stock market is on the horizon. Stock prices soar, house prices are overvalued. These factors are on the increase every day leading analysts to suspect there will be a 2018 stock market crash.
Stock Market Crash 1929
October 29, 1929 is what wall street investors knew as Black Tuesday. In 1929 the stock market crashed because 16 million shares got traded on a single day on the New York Stock Exchange and the market collapsed. Billions were lost, destroying thousands of investors portfolios. In the time after Black Tuesday, America fell into the Great Depression (1929-1939). This is the longest economic downfall in the western worlds history.
The suicide rate averaged at 12.1 people per 100,000 increased to 18.9 people after the initial crash. Many people could not pay the mortgage on their house and farmers had to produce more yield than ever to pay off debts.
Stock Market Crash 2008
September 29, 2008 there saw financial armageddon when the stock market crashed. The Dow Jones industrial Average fell 777 points in intra-day trading. Until 2018 this was the biggest price drop in history. It was caused because congress rejected the bank bailout bill.
The bad news began way back in 2007, but September 2008 was the straw that broke the camels back. The second week of September 2008 is when the Lehman Brothers declared bankruptcy. The Dow dropped 504 points.
Tuesday, September 16th the Fed announced that it would be bailing our Insurance monolith AIG. It made a deal to give $85 billion in return for 79.9% equity. This meant that the Fed now owned most of AIG.. AIG had ran out of cash. The credit default swaps they had issues failing mortgage-backed securities. The outspending had became too large in short.
Wednesday, September 17th saw money market funds lose $144 billion. Companies saw this and panicked, causing them to switch to safer Treasury notes. Causing the Dow to fall 449 points.
Thursday, September 18, markets went back up 400 points after investors caught wind on a new bank bailout proposal.
Now Friday, September 19, the Dow ends at 11,388. Only below its Monday price of 11,416.
September 20, Secretary Paulson and Ben Bernake (Federal Reserve Chairman) sent the bank bailout bill to Congress. The Dow coasted at 11,000 for 9 days. September 29 is when the Senate then voted against the bailout bill. The Dow then fell 777 points, this is the most in any single day in history. The US market sent markets across the world into turmoil.
- Oil plummeted to $95 a barrel.
- London FTSE dropped 15%.
- Gold increased to $900+ per ounce.
- MSCI World Index dropped 6% in one single day, the worst since 1970 – when it was created.
The Fed attempted to regain economic stability, so it doubled currency swaps with central banks in Europe, Japan and England to $620 billion..
Let the good times roll..
Congress passed the bailout bill is October 2008 but the economy was already in shambles. The labor Department reported that the economy had taken a huge loss of 160,000 jobs in September of 2008. Just to top things off, the Dow proceeded to drop another 800 points.
The aftermath of 2008
After the cataclysmic event which was summer 2008, Investors picked up the pieces of what was a once thriving stock market. This cleanup continued for another four years. In 2013, it was time to rejoice as the stock market fully recovered. In the first six months it increased more points than in any other year. Stock prices increased faster than Investors were making money.. creating an asset bubble that is clear in most major cities.
This asset bubble will be one of the main factors if there is a 2018 stock market crash.
Stock Market Crash 2018
Now 2018, the asset bubble is on the increase and trust in the stock market has still not completely been restored.
Despite trust not being at 100%, the strength of the market is better than ever. Stock prices are towering over past records and are in steady climbs.
But with all good things, there is always an end. Many stock market analysts are predicting that another crash is soon approaching. here are the reasons why a stock market crash in 2018 may be inevitable..
Foreign Markets Are Not Doing Very Well
The influx of cash coming into the US stocks is that foreign markets are not doing well at all, leaving US investors stuck between a rock and a hard place where to put their money in. This means that there is no where else but the US to put their money in.
Current bond yields are very low and are not attractive to investors.
Because US stocks are gaining so many investors, valuations are reaching unsustainable levels.. sounds like a bubble.
Real Estate Is Too Expensive
Stocks are not the only form of asset that has high valuations, real estate also has incredibly high valuations. It only takes one look at the average house price in London, New York City or Los Angeles to see that the real estate market is vastly overvalued.
In 2017, the national average for house prices was 32% higher than inflation.
Before the housing market crashed in 2005, the average house price was 35% higher than inflation. So its clear to see that we are walking on thin ice.
Once the housing market collapses, the stock market follows suit. The high price of homes would infer that we may be on the brink of a real estate collapse.
Foreign Market Is Flooding The US Economy
American investors are not the only people riding the wave which is the current US stock market. Foreign investors are also taking head of the great profits of the US stock market and are injecting their cash into stocks.
That sounds great although the foreign money causes overvaluations of the US stock market and these valuations will not be able to get backed up by the results.
These factors are undeniably similar to 2007-2008 and whilst things are on the up for now, it takes only weeks for the market to crumble under its own pressure and for the 2018 stock market crash to happen.
How Does The Stock Market Work?
The stock market works by traders and Investors who buy and sell stock. The price of stock will then go up and down due to the amount (volume) of that stock that people are buying. The goal of traders and investors is to sell the stock for more than they bought it for.
Stock market beginners can practice using virtual simulators instead of spending real capital.
The question is, what is the primary reason to issue stock? Companies issue stock to raise funds. The money investors spend on a company is used for growth.
Check the stock market news to stay updated on the status of the market.