When it comes to stock market crashes, it isn’t a matter of if they will happen but when. Some of the more notable market crashes include the stock market crash of 1929 and the dot-com bust of 2000. Luckily, if you know what to look for, you can actually thrive during these tough economic times so now let me share with you 5 signs that a market crash is on the way!
So before we get into what signs to watch out for, let’s go over what constitutes a stock market crash. A stock market crash is said to occur when there is a rapid and unanticipated decline in the market index in a day or within a few days. A stock market crash occurs when a stock market index like the Dow Jones Industrial Index or the S&P 500 drops dramatically. This usually leads to panic as investors turn into sellers which further brings down the value of the stock market.
In essence, the stock market crashes as a result of a bubble being formed. A bubble is a rapid increase in the value of an asset usually above the real value of the asset driven by speculations from investors. When investors believe that an asset will perform well they will pour large sums of money into it. This triggers the increase in value of said asset and very soon, more people begin to notice and invest. Eventually, the value reaches a certain peak and then performance begins to decline. Panic sets in and investors begin to sell their stocks in droves. This phenomenon sends the price of the asset into a free fall and eventually, a crash ensues.
Many of you may remember the dot-com bubble in the late 1990s which ultimately led to the stock market crash in the year 2000. Several internet startups began operating in the 1990s and investors believed that they would be their ticket to great returns. Many people bought into the hype, often times at inflated prices, with the hope to sell at even higher prices. Unfortunately, most of these startups did not see the success that their investors anticipated and many investors lost their money. If only these investors knew the following five signs that the stock market will crash!
Sign #1: Rapid rise in stock valuations
One of the signs that a stock market crash is imminent is a rapid rise in the value of stocks. Stocks generally rise in value as more people…