How To Navigate A Stock Market Crash

A stock market crash is a dramatic event characterized by a rapid and significant drop in stock prices. This phenomenon can have various causes, including economic factors, political issues, or even investor panic. The result is a loss of value in the stock market, which can have devastating repercussions for the global economy.

There are myriad reasons why an index or an entire stock market can crash from one day to the next. Not all of these need to be present at any given moment – it’s usually enough for a few to occur at the same time, and investor fear does the rest.

Economic Factors: An economic recession, rising interest rates, or deteriorating credit conditions can trigger a crash.

Political Factors: Political instability, wars, unfavorable legislative changes, or aggressive economic policies can create uncertainty in the markets. For example, a government threatening to nationalize key industries or implementing high import tariffs can trigger a capital flight.

Speculative Bubbles: Speculative bubbles form when stock prices soar far above their real value due to excessive speculation. When the bubble bursts, prices collapse rapidly.

Investor Panic: In times of uncertainty, investors can panic and sell en masse to try and minimize their losses, causing a domino effect. This panic can also be fuelled by the media or false alarms. Commonly, the market crash starts with another type of cause and is then heightened by the subsequent sell-off by investors.

Source: CNN Fear and Greed Index

Since the S&P 500 began tracking 500 companies on March 4, 1957, there have been very few occasions—aside from 5th-7th April 2025—where the index has fallen by 10% or more over two consecutive days. The historical examples include:

• The Great Depression (October 4th, 1929): The causes included a speculative bubble in the stock markets and an excess of credit. The result was a long and deep global economic recession.
• Black Monday Crash (October 16–19, 1987): a staggering decline of 25.65%. The exact causes are still debated but include automated trading and investor panic.
• Global Financial Crisis Event 1 (November 5–6, 2008): a drop of 10.30%. Triggered by the collapse of the US housing market and subprime mortgages and further compounded by a lack of trust in the global financial system.
• Global Financial Crisis Event 2 (November 19–20, 2008): a fall of 12.83%
• COVID Crash (March 11–12, 2020): a decline of 14.40%. Caused by the uncertainty due to the Coronavirus pandemic.
• Liberation Day (April 3–4, 2025): a loss of 10.53%

Adding to the concern, the Fear and Greed Index—commonly known as the VIX—has plunged to its lowest level since the COVID-19 crash in 2020, a threshold previously only seen during the Global Financial Crisis.

The similarities between today’s situation and those preceding the major stock market crashes of recent decades reveal several common factors that might indicate potential instability. Here are some of the main similarities:

1. Low Interest Rate Policies and Monetary Stimulus

2008: The global financial crisis was preceded by a long period of expansive monetary policies by central banks, particularly the Federal Reserve, which kept interest rates low and stimulated credit to support economic growth.

Current Situation: In recent years, central banks (notably the Federal Reserve and the ECB) have kept rates low to stimulate the economy, especially during the COVID-19 pandemic. Although rates have been raised recently to combat inflation, global debt remains very high, creating vulnerabilities to a potential recession.

2. High Levels of Debt and Household Indebtedness

2008: Before the 2008 crisis, low interest rates had pushed many households and financial institutions into unsustainable levels of debt, particularly through subprime mortgages and complex financial products.

Current Situation: Global debt has increased significantly—not only for governments but also for households and businesses. The risk posed by high levels of indebtedness is a concern, especially considering rising interest rates, which could make debt repayment more difficult.

3. Speculative Bubbles in Specific Sectors (Technology, Cryptocurrencies, Real Estate)

2000 (Dot-com Bubble): The late 1990s and early 2000 saw rampant speculation in the technology sector, with stocks of internet-related companies becoming overvalued. The bubble burst in 2000, causing enormous losses.

2008 (Real Estate Bubble): The 2008 crisis was fueled by a real estate bubble, driven by easy credit and uncontrolled speculation in housing markets, which led to the collapse of the financial system.

Current Situation: Today, the overvaluation of technology stocks, the explosive growth of cryptocurrencies (such as Bitcoin and Ethereum), and high real estate prices in many regions are seen by some as signals of speculative bubbles that could burst in a sharp correction.

4. High Levels of Geopolitical Uncertainty and Global Risks

2008: Although the 2008 crisis was mainly caused by internal factors within the financial system, geopolitical uncertainty and increasing globalization amplified its effects, making the crisis a global threat.

Current Situation: Today, growing geopolitical uncertainty (wars in Ukraine, tensions between the USA and China, political instability in Europe and other regions) creates vulnerabilities that could negatively affect financial markets. Investors are also concerned about the risks of stagflation and a potential global recession, which could result from a combination of high inflation, high unemployment, and stagnant economic growth.

5. Slow Economic Growth and Potential Recession

2008: The financial crisis was preceded by indications of economic slowdown, with some recession indicators evident even before the market collapse. However, the severity of the crisis was much deeper than anticipated.

Current Situation: Although global economies have shown a strong post-pandemic recovery, there are signs suggesting that growth is slowing, partly due to the side effects of high inflation and elevated interest rates. Many countries are trying to avoid a recession, but inflationary pressures and global challenges pose significant risks to economic growth.

6. Investor Euphoria and Overestimated Market Yields

2008: Before the 2008 crash, there was excessive confidence in the markets, with many investors ignoring warning signs, attracted by high returns. The belief that the housing market would never fall and that the financial system was secure was one of the main causes of the crisis. (Similar to speculative bubbles, but more to do with confidence of stability rather than forecasting positive outperformance).

Current Situation: Today, some analysts speak of an overabundance of optimism in the markets, particularly in the technology and cryptocurrency sectors, where past high returns have fueled the belief that these markets will continue to grow indefinitely. This can lead to a sharp correction once investor confidence begins to waver.

This combination of extreme market movements and subdued volatility points to an atmosphere ripe with investor apprehension and uncertainty. Folks are starting to panic, but here’s why you should pay attention to Buffett’s mantra and stay the course.

Stock market crashes are like sudden storms: Everyone knows they will come eventually, but you never really feel prepared. Those who have experienced market crashes before know that, each time, it feels as if the world as we know it might be on the brink of ending.

But here’s the good news – it never does, and the US economy, along with the stock market, has always withstood these pressures in the long run. (And if the whole market goes to ‘0’, we have a lot bigger things to worry about than fiat currency!)

It’s no coincidence that Warren Buffett’s Berkshire Hathaway had its largest cash pile ever prior to this crash or that Jamie Dimon sold $230 million in shares in February (2025). Some might say they were waiting for a moment like this with open arms.

A stock market crash feels uncomfortable because it suddenly calls many things into question: the value of your investments, your long-term plans, and sometimes even your emotional resilience. It becomes especially tough for those who urgently need access to capital or who have invested too much capital in speculative individual stocks.

Using historical data from Investing.com, we can calculate the S&P 500 performance at different intervals (from the next day through one year) following the four previous instances when the index fell more than 10% over two consecutive trading days.

The results are widely positive across the board.

Could this time be different? We all know that previous results cannot be assumed for future performance. So yes, for sure, it could.

However, as seen above, the odds (particularly on the one-year time frame) are certainly tilted in favor of those willing to take advantage of the lower stock prices.

A stock market crash can have different consequences for various groups of people, whether they are directly involved in financial markets or not. Below, we’ll examine the impact on individual investors, along with pragmatic strategies to reduce negative effects or, in some cases, take advantage of lower prices.

Long-Term investors are often best served by… doing nothing. As we’ve seen above, prices always recover over long periods. Whether a crash is triggered by a pandemic, a geopolitical crisis, or inflation – history shows that even after severe drops, the markets can break out to new highs. The trick is having a mix of patience and a set of ‘rules’ to follow when you can feel emotion creeping into your choices.

Dollar Cost Averaging (DCA) (also called Systematic Investment Plans (SIP)) is where investors send a fixed sum to their chosen broker to purchase stocks at regular intervals. This can help reduce the impact of price volatility and lower the average purchase cost over time. It also removes a lot of the hesitation or anxiety around trying to perfectly time the market.

And, of course, diversification allows investors to maintain a more resilient portfolio by investing in a variety of assets (stocks, bonds, real estate, etc.) to help mitigate potential losses and be on the receiving end of early gains.

Even in times of crisis, there are opportunities to profit:

• Investing in Undervalued Stocks: During a crash, some stocks may become undervalued. Experienced investors can try to identify solid companies that could recover.
  
• Short Selling: Some speculative investors use short selling strategies to profit from falling stock prices. However, this is a risky practice and generally not recommended for small or less-experienced investors.
  
• Purchasing Safe-Haven Assets: Investing in safe-haven assets such as gold or government bonds can offer protection during periods of economic uncertainty.
  
• Recession-Proof Stocks: These stocks, often labelled as “defensive,” belong to sectors that tend to be less sensitive to economic cycles because their products or services are essential and demand remains relatively stable even during recessions.

While historical data is clear on the advantages of buying when everyone is running for the hills (be greedy when others are fearful), it’s not enough to buy any stock that’s currently in the red and hope they’ll mount a comeback. This was the case for household names such as Cisco, which still hasn’t recovered market cap lost in the dot-com bubble more than 25 years ago.

But the good news is investors don’t have to hit the jackpot to reap above-average returns during a crisis.

Finding the right stocks to bet on amid a steep decline is already a tried-and-tested way to outperform.

Best Stocks To Buy During A Market Downturn

When markets fall, real bargains appear – but only if you know what a fair price is. Tools can be incredibly useful in situations like this where time is of the essence, but it’s also important not to dive in without analysis.

For example, InvestingPro’s Fair-Value Calculator uses over 16 valuation models to highlight when a stock is really cheap when compared to its intrinsic value.

Investing.com’s financial generative AI, “WarrenAI,” can help to find the best stocks in the market right now by combining best-in-class fundamental analysis models and institutional-level data sets. Here’s an example:

First, we asked it directly:

“Which are the best stocks to buy amid the current market crash?”

As you can see, it gave us a list of stocks that are currently both undervalued and presenting massive upside potential.

For individuals who feel hesitant and are therefore looking for a more conservative investment, here’s what WarrenAI says when asked to provide the top stocks in the market right now according to the Piotroski method of fundamental evaluation:

These stocks have a much higher likelihood to not only survive but also outperform during a volatile market environment.

Investing.com users can also access several free predefined stock screens, such as:

• Low Volatility Leaders
• Low PE Ratio Stocks
• Bullish stocks

There are multiple benefits to using high-quality tools when trying to navigate or even take advantage of market downturns. These include time and effort savings, objective selection criteria, aiding in risk management, unearthing little-known opportunities (not just the big, well-known names), making the most of momentum swings, diversification, and cost effectiveness.

There’s no question that investors have every reason to be worried about what’s happening in the market – and, more broadly, with the economy.

Market crashes like the one we’re experiencing are rare and demand a complete reassessment of many statements we assumed to be true.

However, if the history of the stock market can teach us one thing, it is that, regardless of the conditions, great opportunities remain for those able to make the right moves at this moment.

Stay calm, stay invested (if you have the right time horizon for it), and stay informed. Use quiet periods to prepare for the next turbulence so that when it hits, you can make the best decisions for you instead of experiencing analysis paralysis.

Not necessarily. If you have sufficient reserves and the companies are solid, you can take advantage of the lower prices. But never buy blindly: Analyze the fundamentals, look at future prospects, and pay attention to your risk diversification.

No, the timing cannot be reliably determined. Markets react to countless factors: economic data, monetary policy, geopolitics, psychology. A 100% reliable prediction is not possible.

In most cases, no. Often it is better to remain invested in quality stocks since the markets recover in the long run. Those who sell everything might miss the upswing. Only in the case of fundamentally weak stocks might selling be advisable.

That varies greatly. Some crashes are over in a few months (e.g., the COVID-19 crash of 2020), while others take one to two years. Historically, the market has always eventually gone up; only the time horizon differs.

This can be sensible if you are well-informed and believe a severe market downturn is imminent. However, such strategies cost money and are complex. For the average private investor, it is often cheaper and simpler to maintain a broadly diversified portfolio.

Have a plan and stick to it. Set clear rules: When do you sell, when do you buy again? This way, you don’t have to think too long during a crash but can rely on your guidelines. Also, avoid checking stock prices around the clock.

InvestingPro quickly provides an overview of fair values, growth potential, and financial stability of companies. Especially when things get hectic, you can more quickly distinguish which stocks might be real bargains – and where you should exercise caution.

At first, it feels that way because prices plummet. But in hindsight, such phases can turn out to be excellent buying opportunities—provided you have the capital and the necessary patience.

Because you never know which area will be particularly affected by a crash. If you spread your money across different sectors, regions, and even asset classes, you mitigate risk. That makes your portfolio more robust against declines in individual areas.