What is the main cause of the stock market crash?
A stock market collapse typically occurs when the economy is overheated, inflation is rising, market speculation is rampant, and there is significant uncertainty about the path of an economy.
The main cause of the Wall Street crash of 1929 was the long period of speculation that preceded it, during which millions of people invested their savings or borrowed money to buy stocks, pushing prices to unsustainable levels.
A stock market crash happens when share prices drop suddenly due to global issues, financial instability, or investor panic. It can be triggered by economic crises, major events, or bursting market bubbles. Fear-driven selling makes things worse, dragging down indices like BSE Sensex and NSE Nifty.
In the stock market, shareholders may lose money in the short run but, on average, they make money in the long run. A precipitous drop in stock prices is not a reason for panic but a potential buying opportunity.
The 1929 crash was caused by many factors including a boom after World War I, overproduction in key industries, increased use of margin for purchasing stocks, and lack of global buyers around the world due to the war.
The stock market crash, however, was just the beginning of a tough several years for investors. The Dow Jones Industrial Average would decline another 82% before hitting a bottom in July 1932. From peak to trough, the Dow's overall decline was 89%. It would take about 25 years for the market to fully recover.
Investors hoping to get rich quickly borrowed to invest more in stocks than they could afford to lose. Massive unemployment beginning in the middle of the 1920s led to a drop in stock prices. The collapse of the banking industry led many banks to foreclose on home loans, eventually leading to the stock market crash.
Generally speaking, crashes usually occur under the following conditions: a prolonged period of rising stock prices (a bull market) and excessive economic optimism, a market where price–earnings ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants.
The Source Of The Stock Market Crash Pain
While most bear markets are caused by things like excessive stock overvaluation or some kind of financial shock like a credit crunch, the current sell-off has been self-inflicted due to the White House's tariff policy.
| Stock Name | Current Price | Buy Rating Perc* |
|---|---|---|
| Hindustan Unilever Ltd | ₹2249.4 | 65.79 |
| NTPC Ltd | ₹349.8 | 85.19 |
| Info Edge (India) Ltd | ₹6374.8 | 78.26 |
| Zomato Ltd | ₹209.63 | 79.31 |
What happens to your money in the bank when the market crashes?
Your money will not be lost. It is usually transferred to another bank with FDIC insurance, or you'll receive a check. Savings accounts, checking accounts, money market accounts, and CDs are examples of federally insured bank accounts.
This lost value isn't transferred elsewhere; it reflects a shift in what investors believe the stock is worth, driven by changing expectations and sentiment. In short, your loss isn't necessarily someone else's gain. The lost value in a stock's decline reflects a decrease in the company's market cap.
Historically, the S&P 500 has come back from every one of its downturns to eventually make investors whole again. That includes after the Great Depression, the dot-com bust and the 2020 COVID crash.
What are the best investments during a stock market? Some investments that may provide positive returns during a stock market crash can include safe-havens such as gold and the US dollar. Companies related to consumer staples also tend to rise in value, such as utility, food or pharmaceutical stocks.
After the fall of France in June 1940, the United States increasingly committed itself to the fight against fascism. Ironically, it was World War II, which had arisen in part out of the Great Depression, that finally pulled the United States out of its decade-long economic crisis.
Many people blamed the crash on commercial banks that were too eager to put deposits at risk on the stock market.
It's possible in principle, but we'll have to move fast. If there is a slump that spreads to the first world oustside the U.S., then we have got to cut interest rates, start spending that budget surplus ... The Great Depression would have been easy to stop in 1930. It was very hard to get out of by 1935.
If the stock market value is growing much faster than the actual economy, then it may be in a bubble.
Many investors—both institutional and individual—had borrowed or leveraged heavily to buy stocks, and the crash that began on Black Thursday wiped them out financially, leading to widespread bank failures. That, in turn, became the catalyst that sent the United States into the Great Depression of the 1930s.
Obviously, stocks did horribly during the Great Depression. But bonds did well. Interest rates and bond prices are two ends of a seesaw. When bond yields are rising (usually from investors anticipating higher inflation), bond prices go down–and vice versa.
How much money was lost in the stock market crash in 2025?
The U.S. stock market has wiped out $9.6 trillion since Inauguration Day – $5 trillion of which evaporated between April 2 and April 4 which is “the largest two-day loss on record,” according to MarketWatch. And the market carnage continues Monday.
By 1930, 4 million Americans looking for work could not find it; that number had risen to 6 million in 1931. Meanwhile, the country's industrial production had dropped by half.
Howard Hughes became a major player in the film and aircraft industries. J. Paul Getty bought oil stocks when prices were low and made a fortune. James Cagney rose to fame and earned a lot of money as a Hollywood actor.
Higher-quality stocks that pay dividends, especially shares of companies that have consistently grown their dividends, might help boost your total return when stock prices are falling. TIP: Look for buying opportunities that volatility might create – for instance, among stocks that might have been overvalued before.
A stock market crash is a sudden, steep decline in stock prices due to economic or political instability. Excessive leverage, inflation, and rising interest rates are major economic triggers of market downturns.
