The stock market has crashed several times throughout history, including the infamous Crash of 1929, Black Monday in 1987, and the financial crisis of 2008. While the exact cause of each of these crashes can get a bit complicated, stock market crashes are generally caused by some combination of speculation, leverage, and several other key factors.
Here’s a rundown of six different stock market crash catalysts that could contribute to the next plunge in the market.
Many market crashes can be blamed on rampant speculation. The Crash of 1929 was a speculative bubble in stocks in general. The crash in tech stocks in the early 2000s followed a period of irrational speculation in dot-com companies. And the crash of 2008 can be attributed to investor speculation in real estate (and banks enabling the practice).
The point is that when irrational euphoria about a certain asset class or industry exists, it’s not uncommon for it to end very badly.
2. Excessive leverage
When things are going well, leverage (a.k.a. “borrowed money”) can seem like an excellent tool. For example, if I buy $5,000 worth of stock and it rises by 20%, I made $1,000. If I borrow an additional $5,000 and bought $10,000 worth of the same stock, I’d make $2,000, doubling my profits.
On the other hand, when things move against you, leverage can be downright dangerous. Let’s say that my same $5,000 stock investment dropped by…
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