A market crash is a sudden dramatic decline in prices across a broad sector of the stock exchange, typically resulting in significant loss of paper wealth. They’re often preceded by speculation and economic bubbles and are triggered by a combination of panic selling and underlying economic factors. They can also be exacerbated by political shocks, such as unexpected election results or referendums like the 2016 Brexit vote, that quickly reshape perceptions of a country’s growth and competitiveness.
Today, markets have sophisticated safeguards against crashes. Circuit breakers automatically pause trading whenever a pre-defined market decline occurs to give investors a chance to take stock of their positions. But even with these safety nets, crashes still happen. The hallmark of most historic crashes is the convergence of an unexpected trigger with hidden market vulnerabilities that are exposed by a sudden shock to the system.
The most recent market crash, triggered by the escalation of trade tensions between the US and China, has been particularly severe. Investors have been terrified that the new tariffs will lead to a global recession, driving down the price of everything from oil to gold. The fear has prompted high profile business leaders, including Jamie Dimon and Bill Ackman, to speak out against Trump’s strategy. But Trump is doubling down, and he’s not alone. The US and many other countries have already enacted or plan to impose new tariffs.
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