Will the Stock Market Never Crash Again

eleven Min Read | Oct half dozen, 2021

For everyone who has been belongings their jiff while watching stocks in 2021—just hoping the rug won't be pulled out from under them—July xix sure wasn't their day. That's when the stock market place took its biggest hit of the year, with the Dow Jones falling 2.1%, the S&P 500 dropping 1.vi%, and the Nasdaq tumbling 1.1%.¹Look, information technology's skillful to be in the know nigh what'due south going on, just at the end of the twenty-four hours, worrying will only cause harm, non good.

Oh, and for the tape—by the end of the week, the market had recovered.²

So, volition we meet the stock market place crash during the balance of 2021? Let's take a look at some of the major factors (with a absurd, level caput) to better understand where the market is going.

What Is a Stock Market Crash?

A stock marketplace crash is a sudden and big drop in the value of stocks, which causes investors to sell their shares apace. When the value of stocks goes down, and so does their price—and the end outcome is that people could lose a lot of the money they invested.

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To get an overall idea of the value of stocks, nosotros look at indexes (that's something that tracks how well stocks do) like the Dow Jones Industrial Average (DJIA), the Southward&P 500 and the Nasdaq. If you look at a visual graph of one of these indexes, you can see why we apply the termcrash. It'due south like watching a plane take a nose dive.

Previous Stock Market place Crashes: Examples From History

Throughout history, the market has gone through a lot of extreme ups and downs. When we await back, nosotros're reminded that, yes, a market crash is a very difficult matter to go through, but it'south something we tin can and will overcome.

The Great Depression,1929: Over the class of a few days, the DJIA dropped nearly 25%.ⁱⁱⁱ It took a little over a decade for the economy to get dorsum to predepression levels. It was the industry from Earth War II that helped get things back up and running.
The Stock Market Crash, 1987: The marketplace lost 22.half dozen% of its value in one day known as Black Monday.⁴ Simply within 2 years, it had recovered everything it had lost.⁵
September 11, 2001:Terrorist attacks in our country caused a major hit on the marketplace, but information technology corrected itself super quick. Just 1 month later, the stock market place had returned to September 10 levels and kept going upwards throughout the terminate of 2001.⁶
The Great Recession, 2008:The DJIA lost more 50% of its value in a actually short fourth dimension.⁷ But afterwards a couple of years, the market was stronger than ever before—nosotros were basically in a bull market place (a menses of large economical growth) from 2009 to just before the coronavirus crash.
The Coronavirus Crash, 2020: In March of 2020, the COVID-19 pandemic triggered the near rapid global crash in financial history. However, the stock market recovered basis pretty quick, and the year airtight with record highs.⁸

Then, keep your head up. Chances are, you've already lived through two major crashes and recessions. It's part of the rhythm of life!

What Causes a Stock Market Crash?

A stock market place crash is acquired by ii things: a dramatic drop in stock prices and panic. Hither's how it works: Stocks are small shares of a visitor, and investors who buy them make a profit when the value of their stock goes up. The value and the price of those stocks are based on how well investors believe the company volition exercise. And so, if they think the company they're invested in is headed for difficult times, they sell that stock in an attempt to become out before the value drops.

The reality is, panic has just as big of a role in a stock market crash every bit the actual economic issues that cause it.

Let'southward walk through an example from the coronavirus pandemic that shows you lot just how powerful panic is. As news of the virus spread, grocery and convenience stores all across the world sold out of toilet paper in a matter of days. Was there a toilet paper shortage? Well, yes and no. In that location wasn't a shortage before people started panicking. But when people lost their minds and started stocking upwards on toilet paper, their actions created a shortage!

The same kind of panic can trigger a stock market crash. Once investors see other investors selling off their stocks, they go pretty nervous. And so, stock values first to dip, and more investors sell their shares. Next affair you know, everyone is dumping their stocks, and the market place is in a total-fledged crash. Await out beneath!

Our point here is this: The stock market place's value is 100% based onperception andprediction of the futurity. No wonder it feels like such a roller coaster ride!

How Did the Coronavirus Crash Impact the Stock Market place?

Let'due south pretend we've got a time machine to take us back to March of 2020 when the coronavirus was officially declared a pandemic (don't worry, we won't stay long). While people were rampage-watchingTiger King or swarming the supermarkets to purchase toilet paper, the global economy was in chaos. Supply chains footing to a halt. Entire industries shut down overnight. And the stock market crashed—large time.

Dorsum in the early days of the pandemic, the stock market took us all on a ride. Global markets (non just here in the U.Due south.) took a huge plunge, triggering a brusk-lived bear market (where the stock marketplace falls by at least 20%) and an economical recession in the next few months. If yous were checking your 401(k) during those days, you lot probably felt panicked as y'all watched your savings disappear.

Simply afterward the initial olfactory organ dive in March, the market started to inch its way back to recovery. And by the time the New year's day'south Eve ball dropped on December 31, 2020, the stock market had regained all of its lost ground—and so some! Did you catch that? All of the major indexes grew in 2020:⁹

The S&P 500 gained 15.half-dozen%.
The Nasdaq gained 43.viii%.
The Dow Jones gained six.5%.

We still have a road ahead of us in 2021, but looking back, we tin run into that even the big, scary coronavirus crash didn't knock u.s.a. out for long. In fact, economists are at present maxim the recession from the coronavirus crash was the shortest on record—but lasting 2 months!¹⁰

Will the Stock Market Crash in 2021?

All correct, let's merely say it: Even though stocks took a tumble in July—for a day—that doesn't mean that "the big one" is on the mode. Permit's become one thing directly:No one can perfectly predict whether or not the stock market is going to crash during the rest of 2021. But retrieve dorsum to everything that happened last year—you can't make this stuff upwards!

And then, will the stock market crash in 2021? All we tin do is look at the things that volition influence the market and your investments throughout the rest of the year. The good news is that major financial analysts predicted steady growth of the bull marketplace in 2021.¹¹ Simply let's look at the specifics and where we are now.

Reasons to Experience Cautious About the Stock Market place in 2021:

COVID-xix: The coronavirus isn't going anywhere, and new strains similar the Delta variant are causing case numbers to go upwardly.¹²
Unemployment: Although nosotros've recovered millions of jobs since the land was hitting hard in 2020, we're still experiencing huge unemployment numbers.^thirteen
Inflation: Those stimulus checks come at a price. With more authorities spending, we've seen an increment in inflation, which has lead to investors pulling dorsum and being cautious.

Reasons to Experience Optimistic About the Stock Market in 2021:

Vaccinations: As more people became vaccinated for the coronavirus, the stock marketplace responded in a positive mode. Nosotros've already seen more optimism, movement and spending. There's a lot of pent-up energy in our country, and people are gear up to become out and nearly!
Old industries reopening: As the globe continues to reopen, we'll encounter sure businesses proceeds value in their stocks again (think oil, travel and amusement).
New industries growing: Specific industries—tech, due east-commerce and biotech—gained tons of ground during the pandemic and will go along to grow and give investors reason to experience confident.^xiv
Low interest rates: The Federal Reserve has promised to keep interest rates near zero until at least 2023, which volition encourage spending.¹⁵

Nosotros can run numbers and make predictions all twenty-four hours long, but at the end of the day, we have no idea what's going to happen for the residual of 2021—no one does. And so permit's be the kind of people who are prepared for anything the future has in store.

What to Do During a Stock Market Crash

If the market does crash again in 2021, remind yourself that you lived through another crash simply last year. In the center of chaos, you've got to focus on what you can control: your attitude, your outlook and your deportment. Of course, a crash is scary. Yes, yous'll accept to make some changes. But with the correct plan to motility frontward, nosotros can and will continue to make progress. Here are five ways y'all tin respond to a stock market crash:

1. Refuse to panic.

Like we said before, panic can make the crash just as bad as the bodily economical issues we're facing. Don't fall for it. Dealing with the unknown creates dubiousness, and uncertainty left unchecked can get fear. Choose to stay clear and positive with your thoughts.

two. Cut dorsum on everything.

You tin't control how Congress makes their budget, but you can control howyou make your budget! If the economy goes under, information technology ways it'south time to cut outall unnecessary spending ofwhatsoever type. Cancel your gym membership, and don't even recall almost having an online shopping spree! Meal program to save money. Utilize up the nutrient that you have in your pantry and freezer before you become out and buy more than.

Focus on funding the Iv Walls earlier annihilation else:

Food
Utilities
Shelter
Transportation

Protect yourself and your family. Tighten the budget and hang in there.

3. Follow the proven programme.

Pelting or shine, the Infant Steps don't change. They're the proven plan for managing your money, and they work! You demand to sympathise which step you're on and and so piece of work the plan.

If you've lost your income: Focus on piling upwardly every bit much greenbacks every bit y'all can. You can interruption paying extra toward debt right now. As much every bit that stinks, don't worry—it'southward not forever. When the tough fourth dimension passes—and it volition—and then you can start support and pay extra on your debt.

If your income is stable: Proceed right on working the Baby Steps like you were, and don't pause your debt snowball. Stay on the plan!

iv. If yous're investing, stay invested.

If yous're on Baby Footstep iv, keep investing 15% of your income (unless you need to pause for a while considering you lost your income). Lots of people are tempted to cash out their 401(k) or common funds when the market place takes a olfactory organ swoop before they "lose any more money." But if y'all pull out now, you lot'll guarantee a loss. Stay plugged in and ride it out to requite your investments more time to grow and recover. Don't try to fourth dimension the marketplace. Focus ontime in the market.

5. Meet with an investment professional.

When there are big shifts in the market, schedule a call with your investment professional person. You need specific communication for your state of affairs—your age, your funds, the types of retirement accounts y'all have, and which Baby Step yous're on. Enquire your pro if you demand to make any changes considering of the crash. Don't be afraid to share what's on your mind. If you're married, make sure your spouse is on the call! Make a plan for how you'll move forward together.

And by the mode, if you lot've been playing the investment game without a pro in your corner—don't. Connect with an investment professional person in your expanse.

Stay Calm During a Stock Marketplace Crash

You've got to choose to be patient and think long term here. No thing what the balance of 2021 has in store, remind yourself of the things y'all know to be truthful. You care near your family, your dreams and your future—so make your investment decisions with those things in mind. You'll do a much improve job of that if yous stay positive and focus on the factors that you can control. So hang tight, accept it one day at a time, and nosotros'll all get through the rest of this year together.

Ramsey Solutions

Nearly the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal evolution since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well every bit two syndicated radio shows and 10 podcasts, which accept over 17 million weekly listeners. Acquire More than.