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The S&P 500 Index and TSX Composite Index traded in red in the initial market hours on Tuesday, February 23, leading to investors worry about another market crash. Tesla Inc. (TSLA:US or NASDAQ: TSLA) was down more than 12 per cent at the opening bell.
Following Federal Reserve Chair Jerome Powell’s positive outlook on inflation, the stock market sentiment reversed, and erased losses by the end of the trading session.
However, the Nasdaq added steep losses and at one point doffed over 2 percent before paring some declines. It ultimately closed 0.5 per cent down as investors stepped away tech stocks.
During the COVID-19 led market crash in March 2020, markets had started rebounding within a month.
Generally, a crash is triggered when the stock market is down nearly 10 per cent within a few days or a week. However, the definition of stock market crash widely varies. For some, the more acceptable explanation is a sizeable loss in the stock market's value in a short period of time.
Sometimes, investors misunderstand a market correction to a market crash and start panic selling, which is quite a usual phenomenon.
For example, if a stock is overvalued, investors start profit-booking by unloading their extra holdings. Growth stocks often witness such frequent correction sessions.
This recent trend of market volatility is somewhere co-related to the volatile cryptocurrency market where institutional investors have sided with ‘for crypto’ or ‘against crypto’.
Microsoft owner Bill Gates yesterday said that he does not hold any cryptocurrency and not bullish on bitcoin, and cautioned traders buying into anonymously run digital currency. While taking a dig at Elon Musk, he suggested that investors who do not have extra cash like the Tesla CEO, should be careful.
On Tuesday, giant FinTech companies such as PayPal Holdings Inc. (PYPL:US or NASDAQ: PYPL) and Square Inc. (SQ:US or NYSE: SQ) also tumbled 5 per cent and 8 per cent, respectively. Both digital payment firms hold a significant number of bitcoins and have already allowed their users to pay in cryptocurrency on their respective platforms.
Image Source: Kalkine Group @2021
A Glance At Past Market Crashes
The top five market crashes include the Great Depression of 1929, Black Monday of 1987, the dotcom burst of 2001, the financial crisis of 2008, and the COVID-19 pandemic led market collapse last year.
It is not easy to spot the market crash trend initially because the past crashes were unanticipated and fast.
Panic selling of stocks and weaker economic indicators are the general indicators of any market crash. The 2008 financial crisis was fueled by the real estate and housing market slump.
But the pandemic-led meltdown arrived as COVID-19 cases rose across the world and global stock markets entered the bear zone.
Well, stock markets have already recovered from the COVID-led crash. But we could see few corrections in the stock market in the upcoming days. However, with economies pumping in stimulus and positive inflation, another market crash is not in the near sight.
