The drop in global stock markets was triggered by multiple factors. Investors grew concerned that trade tensions and geopolitical risks were affecting industrial demand and energy prices. Corporate earnings reports fell short of high expectations, and rising bond yields prompted investors to seek safer investments in fixed income. The US government shutdown, which delayed key economic data, also heightened market uncertainty. Investors also reassessed high-growth tech and AI companies for potential overvaluation and the effect of higher interest rates on their profitability.
While most stocks declined globally, some countries’ stock markets crashed more than others. For example, India’s Sensex dropped by 26% in just eleven months. This was largely driven by the demonetization initiative and the government’s crackdown on black money, which caused people to withdraw funds from banks.
Most market crashes follow a familiar pattern. Like a line of dominoes, they start with a catalyst-perhaps disappointing economic data or a major bankruptcy-that triggers selling. That in turn prompts more sellers and so on. Eventually, the momentum pushes prices down so much that trading is halted or even suspended for a period of time.
Markets typically recover from these hiccups, though recovery time varies. Events that slow growth and raise inflation, or disrupt supply chains, tend to have the most dramatic effects. The Covid pandemic sparked the largest crash, but other events including President Trump’s global tariffs and US-China trade talks have also caused stocks to drop sharply. However, unlike previous crashes that took years to recover from, the rapid decline during the COVID-19 crash was accompanied by fast policy responses that helped the economy stabilize.