The Global Stock Market Crisis: Are We Looking At The Advent Of A Market Crash?

On Monday 5th Feb 2018 at around 3 o’clock (Eastern Standard Time), the Dow suffered its worst fall in a single trading day. It dropped by 1170 points-so far the largest single-day points fall in history. This is the worst fall in percentage since 2011-a whopping 4.62%. Initially it plunged down over 1500 points, for no obvious reason, then it recovers and we see swings of between 2% to 3%, for all the obvious reasons we know- a new Fed chair, Jerome Powell, who takes over, worries over rising interest rates, concerns about higher inflation, deep worries over rising wages, all these and with companies that are heavily indebted, and you see what has happened on today’s market.

The Dow Jones Industrial Average (also known as the Dow) is a stock market index created by 30 companies from the Wall Street. The US stock market saw a free-fall in stock prices. For most investors, this flash-crash-style drop may give chills and bring a lot of panic-but the experts say that there is no reason to panic.

The global economy is in good shape. “As long as the recession is unlikely in the US and globally, it’s likely to be just a correction,” said Shane Oliver, head of the investment strategy at money management AMP Capital. – MSN News.

 

Stock market crash. Image from https://www.lombardiletter.com/stock-market-crash-1-indicator-says-stock-investors-beware/26029/

This fall saw the greatest billionaires in the world lose billions-at least on paper- in a matter of minutes. The net worth of billionaires like Berkshire Hathaway CEO Warren Buffet went down nearly by 5.5% during the day. The CEO is tied closely to the volatilities of the stock market whereby the shares of Berkshire Hathaway went down nearly 6% on Monday afternoon, the Wall Street Journal reported.

The rest of the global stock markets reacted closely the same way. The Standard and Poor 500 (S&P 500) plummeted close to 115 points; a loss of 4.10% while the technology-heavy Nasdaq lost 273 points (3.78%). America is a global economy and investors look up to it big time. The loss of the Dow created a butterfly effect in other markets such as the Asian stock market. Japan’s benchmark Nikkei 225 sank 4.8% before recovering slightly, while Australia’s benchmark S&P/ASX 200 was down 2.7%. In South Korea, the Kospi lost 2.3%.

Meanwhile, in Europe, London’s FTSE 100 has recovered slightly from its 3.5% initial drop, and is now down 187.30 points at 7,147.68, a fall of 2.6%. The FTSE 100 currently is at 148.96 points (2.03%).

In Germany, the Dax index is down 3.4%, while in France the Cac 40 index has fallen 3.2%.

I am quite sure, from what happened, you might want to think through and ask yourself the logic behind this madness. Experts try to bring the point on Market Corrections, whereby the market, through its own forces, experiences high volatility over a period of time, in an attempt to remove ‘perceived misconceptions’-sounds like rocket science.

Nevertheless, as a wise investor, you shouldn’t lose hope, at least for now. Having a panic would do more harm than ever; with the worst case scenario being a Market Crash. That’s what markets are like. Tens of millions of people don’t always act rationally in response to new information; often, they react to nothing but how they think other people are acting or will act. Logic can melt into emotion in the blink of an eye.

Monday’s madness is a reminder that investing in stocks doesn’t automatically make people rich. Twice in the past 20 years—between 2000 and 2002, and again between 2007 and 2009—the stock market has cut investors’ wealth roughly in half.

No one can say when that will happen again, but everyone should know that it can—and very well might. If a 6% daily drop makes you squirm, then you probably have too much invested in stocks for your own psychological good.

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