Stock market crash
Those who were related to or deals in the stock market are very much aware and familiar with the social phenomena where al fresco economic events combines with the behavior and psychology of the crowd in a positive feedback loop i.e. stock market crashes. Generally, a market where P/E ratio go beyond long term averages, wide-ranging use of margin debt and leverage by market participants, and a long-drawn-out period of rising stock prices and excessive economic hopefulness are some of the conditions or factors due to which crashes occurs in the stock market. Over the period of seven days the steep double-digit percentage losses in the stock market index is imply as crashes in the stock market. Due to the sure possibilities of crashes in the stock market index it becomes very crucial and important for one to understand the reason behind the stock market crash and its effects.
What happens when the stock market crashes? As this is merely a big question for the layman. When we say that the stock market crashes we mean that there is dramatically drop in the value of the stocks across the board. Dramatically fall in the stock of all the companies causes fright among the investor and thus they rushes to sell their stocks. The problem of stock market crash gets worse by the fall in the lower stock values as because more and more people tries to sell out their stocks. Occasionally, economic and political situations may also play a vital role in the stock market crash.
There are many people who were responsible or play a significant role in the fall of the stock market index. In most of the case shareholders, one who own stocks, are involved in the crash of stock market index. Without understanding the stock market thoroughly they may invest in the stocks or they may borrow money or cash to buy stocks. The temporary downturn in the stock market gets converted into the actual crash by the investors who do not understand the strategy of stock market and try to sell their stocks in hurry due to the fear. This happens because the investors buy stock in the hope that they will make profit from these. But when they hear from some kind of economical news that there will be a loss, they hurry to sell their stocks. Thus makes downturn in the price or value of the stock.
The companies, who sell the stocks, are also responsible for the crash in the stock market index. Due to the decrease in the value of their stock, the company starts controlling their spending. The cost control is often done by the job cuts and other types of curbs which on the contrary reduce the investors faith. Thus affect the overall economy. The professionals related to the finance and investment also involved in a crash of stock market. They are the ones that people turn to when there is a fall in the value of stock. They also report and explain the incident to the media person and reporters. The stock market crashes cause economic depressions on the whole by the virtual influence on the every aspect of the economy. There will be slow growth in GDP, slow economy growth, job loss, and devastated consumer confidence is the results when there is a decline in the value of stock.
Many people are panicked by the sudden crash in the value as most of the stock market crash follows a bull market and may become more cautious with their money. Bull market is a situation of the stock market when the market is on peak and investors are buying and making profit from the stocks. Thus everyone is affected by a crash in the stock market index. Due to this risk involved in the stock market, many of the investors refuse to enter the world of stock market and refrain from anything related to stock markets. But by taking the help of the professional of finance and investment will reduce the chances of getting trapped in such a situation.
In the history of the stock market, the stock market crash on 1929 is key year. In the year 1929 when the bull market crashed dramatically resulted in an economic depression that last for many years. This crash in the stock market index is listed as a black Thursday. The economy had been growing robustly as most of the innovation took place during this period. The innovation namely Radio, aviation, automobile, telephone deployed and adopted in this year. The Dow Jones Industry Average dropped a total of 50 percent on 24th of October 1929, Thursday. This consequently decreases to 85 percent on the year 1930. The 1929 crash of stock market made many people completely financially ruined as they had placed all their money and assets in the stock market. There were shortage of jobs, banks were sealed, and companies were closed. The stock market crash leads to major unemployment. This remains till the United State entered the second world that dramatically improved the economy.
Again there was a crash on 19th October, 1987 which is listed out as Black Monday among the stock market crash. This crash was the climactic finale of a market downturn that had begun on October 14, 1987. In this stock market crash out of 2,257 NYSE listed stocks only 195 were trading delays and halts during the day. The stock market crash on 1987 was the greatest single day loss that Wall Street had ever suffered in continuous trading. The 1987 stock market crash was a worldwide happening during which all the major markets of world deteriorated substantially. In the 1987 stock market crash the most affected was the stock market of Hong Kong with a fall of 45.8%. And the stock market of Austria is the least affected with a fall of 11.4 percent. The 19 industrial countries among the 23 major industrial countries had a fall greater than 20 percent.
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