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Stock market panic over an unpredicted event can have a domino effect on stock markets, causing stock prices to crash. Investors look to sell their stocks before they fall further. Each investor wants to sell stocks, which causes stock prices to plummet.
All sectors have been affected by the Coronavirus pandemic. Storage issues have led to negative oil futures prices. Stock indices fell earlier in March 2020 due to fears of a recession.
Global markets became volatile in March. However, the Black Monday of 2020's stock market crash on March 9 will be remembered. Global stock indices including bellwethers like Dow Jones crashed to their lowest point in one day. This was the worst movement since 2008's global recession. These indices recorded further historical losses on March 12th and March 16th.
These ripple effects were felt in India too. In March, the BSE Sensex fell to close at 2,919 points (or 8.18%), triggering a circuit breaker within minutes of market opening. The index plunged as high as 3204 points in one day, according to intraday records. NSE Nifty also suffered a similar decline of 8.30% in one day.
It is clear that the 2020 stock market crash will be severe, as only two other occasions have occurred in stock trading history that saw markets experience such dramatic declines in one day. Black Monday, October 19, 1987 saw prices drop 22.6 percent. Prices fell 23.52 per cent on December 12, 1914. This was the start of the Great Depression.
Here is a timeline of how panic and recessionary fears brought down the stock market:
February 24-28, 2008: Record weekly declines in global stock markets since 2008.
Monday 9, 2014: Dow Jones Industrial Average, the leading US stock index, fell 14 points. Dow suffers the worst single-day point drop in history. S&P 500 also dropped 7.60 percent. Brent crude oil prices fell 22 percent due to a lack of demand. The circuit breaker was activated by a 7 percent drop in stock prices within 5 minutes. Trading was stopped for 15 minutes.
Monday 12: Also known as the Black Thursday, the Dow plunged a record 10 per cent by 2,352.60 point, marking a stock market correction of just one day. Prices fell by more than 9 percent in North America and Europe, as well as the Dow. S&P 500, Nasdaq and Dow dropped around 9.5% each day.
- India's BSE Sensex fell by 2,919 points following a global sell-off of stocks. This was an 8.18 percent intra-day loss. NSE NIFTY saw a similar drop of 8.30 percent. The FTSE also lost 17 percent on that day.
March 16, 2009: The Dow fell 2997 points. This is a decline of 12.9 percent. A similar decline was seen only back in October 1929 Black Monday.
The Dow closed at 20.3 percent lower than its February 12 historic high of 29,553 point, the highest level in 100 years. After an 11-year bull market, the 20 percent drop indicated a beginning of a bearish market.
One benchmark stock index in each of the G7 countries has been declared to be in a bear market. This is a phase in stock trade that is dominated by a pessimism when stock prices are expected to fall and so stock demand remains largely muted.
- The stock market crash had destroyed equity wealth of 40% of India's Gross Domestic Products by March 24.
Market reactions that occurred after March 12 were triggered by uncertainty about the impact of the coronavirus pandemic on the economy. This was exacerbated by the ongoing oil price war between Russia, Saudi Arabia, and Russia.
The World Health Organisation declared the coronavirus pandemic. This triggered a series global travel bans and lockdowns. Investors became concerned about the impact of the pandemic on the economy and markets, and began to withdraw their funds en masse. This led to stock markets plummeting around the world. Global trade was halted by the pandemic, and domestic production in many countries that were affected has been slowed.
The stock market crash is not an isolated result of the pandemic. Since the onset of trade wars between China and the US, markets were volatile and trade relations between them deteriorated. The Dow was down 10 percent from its historical high at the end of February.
The crash could have a negative impact on your retirement savings and other investments in the stock market. Many people panic when something like this happens and sell their stock to avoid further losses. The problem with this strategy is that it can be difficult to determine when to re-enter and buy again. If you miss market gains, you can lose more long-term. On average, bear markets last 22 months. Some bear markets last as little as three months. Financial planners advise you to wait and watch it all unfold.
Oil prices were already in pressure because commodity prices all over the board were falling due to pandemic fear as factories stopped making and production slowed. After talks with Russia on reducing oil production in the aftermath of the pandemic, Saudi Arabia launched a price war to bring down oil prices.
Trading analysts agree that every stock market crash offers trading opportunities. If you have the technical knowledge and trend analysis to help you choose the right stocks, this may be a good opportunity to buy during a dip. Some recommend that you wait and watch when stock investing is happening. It's difficult to predict how the economy will recover and what the consequences of the pandemic might be.
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