When a global market crash hits, panic sells accelerate prices and force traders to unwind positions. That creates opportunity for skilled traders who know how to use volatility to their advantage. But the path to recovery varies by market, and understanding past crashes is essential for predicting what lies ahead.
Policy Missteps and Inflated Valuations
History shows that political policies and overleveraged banks play a big role in triggering market collapses. Traders who study historical blowups can spot the warning signs and be more prepared for a sudden change in momentum or macro risk factor that could send markets into freefall.
Inflation and Debt
High inflation can squeeze consumer spending, lower business revenue growth expectations and dampen investor enthusiasm. Inflation also raises borrowing costs for companies and consumers, which can lower profit margins and increase debt risks. Sudden changes in government policy can also shake investor confidence and trigger a stock market crash.
The 2008 crash triggered by Lehman Brothers’ bankruptcy sparked one of the worst financial crises since 1929, resulting in trillions of dollars in losses and mass layoffs. It also ushered in sweeping reforms that strengthened bank oversight and regulation, making it harder for risky lending to collapse the entire system. Markets still suffer occasional hiccups, but the financial system has become much more resilient to crisis.