Are we headed towards a Stock Market Crash?

Are we headed towards a Stock Market Crash?

Are we headed towards a Stock Market Crash?

stock-spotify-logoThe question many investors need an answer to these days is whether we are headed towards a stock market crash or not. From the looks of things, it seems highly likely. Thinking about what a stock market crash is, it is fair to say that everything is pointing in that direction. By definition, a stock market crash is when there is a sudden wholesale dip in stock prices across a large cross section of the stock market. A stock market crash is usually precipitated by widespread fear and herd like behaviour where fear and speculation replace common sense approaches.

Looking back at the stock market crash of 1929, we may gain some insight that will allow us to better determine whether we are likely to have a repeat of such an event in the very near future. October 29, 1929 goes down in history as arguably the worst day for stock market investors in history. During this single day, 16 million shares were traded on the New York Stock Exchange alone. Several investors lost big time and this one day heralded what we refer to as the Great Depression of 1929. This depression lasted for a total of 10 years and represents the longest economic slum ever faced in the Western world.

The stock market crash of 1929 was precipitated by spates of unemployment, decrease in production, low wages and a period of great indebtedness. The crash was preceded by a brief period in which the stock market flourished and expansion was rapid. This led to much market speculation which fuelled the crash in October 1929.

Looking at what is happening on the stock market these days, we can see clear similarities but there are also many differences. One similarity between what was happening prior to the 1929 stock market crash and what is happening today, is the market correction. While market corrections are normal occurrences that happen if the stock market is largely “overvalued”, there is cause for concern given the events that this correction could and may have already triggered. One thing for certain is that investors are in panic mode and any wholesale selling of stocks may just trigger a crash. Last week’s Black Monday seems like dejavue when we reflect on the happenings of that horrific Black Monday and eventual Black Tuesday on October 29, 1929 when everything came tumbling down.

Only time will tell whether we are headed for a stock market crash or not. But from the looks of things, we aren’t a far way off. It is going to take drastic measures to prevent a crash from happening. The saying that history repeats itself is the least comforting saying in these times. While it may be too late to correct the wrongs, investors should use this opportunity to minimize the risks of losing. Immediately, stock options come to mind. While stock options are not a sure hedge, they do provide some amount of protection for investors.