Is It Likely to Have a Market Crash Like 2008 Again

11 Min Read | Apr 6, 2022

For investors, the start of 2022 has been quite a roller coaster. Worries about inflation and rising interest rates sent stocks tumbling in January, and Russia invading Ukraine in February sparked another wave of volatility for the stock market.¹ ^, ²

All this fear and uncertainty about what's coming next has led to whispers about the potential of another stock market crash—the first since the start of the coronavirus pandemic back in 2020.

So, will we see the stock market crash during the rest of 2022? Let's take a look at some of the major factors (with a cool, level head) to better understand where the market is going.

What Is a Stock Market Crash?

A stock market crash is a sudden and big drop in the value of stocks that's caused by investors selling their shares quickly. That drives down the value of stocks for other shareholders, who also start selling their shares to try to cut their losses. The end result is that people could lose a lot of the money they invested.

Craft a harder-working money plan with a trusted financial pro.

To help us visualize how well the stock market is (or isn't) doing, we look at indexes like the Dow Jones Industrial Average (DJIA), the S&P 500 and the Nasdaq. If you look at a historical graph of one of these indexes, you can see why we use the termcrash. It's like watching a plane take a nose dive.

Previous Stock Market Crashes: Examples From History

Throughout history, the market has gone through a lot of extreme ups and downs. When we look back, we're reminded that, yes, a market crash is a very difficult thing to go through, but it's something we can and will overcome.

The Great Depression,1929: Over the course of a few days, the DJIA dropped nearly 25%.³ It took a little over a decade for the economy to get back to predepression levels. It was the industry from World War II that helped get things back up and running.
The Stock Market Crash, 1987: The market lost 22.6% of its value in one day known as Black Monday.⁴ But within two years, it had recovered everything it had lost.⁵
September 11, 2001:Terrorist attacks in our country caused a major hit on the market, but it corrected itself super quick. Justone month later, the stock market had returned to September 10 levels and kept going up throughout the end of 2001.⁶
The Great Recession, 2008:The DJIA lost more than 50% of its value in a really short time.⁷ But after a couple of years, the market was stronger than ever before—we were basically in a bull market (a period of strong economic growth) from 2009 to just before the coronavirus crash.
The Coronavirus Crash, 2020: In March of 2020, the COVID-19 pandemic triggered the most rapid global crash in financial history. Still, the stock market recovered ground pretty quick, and the year closed with record highs.⁸

So, keep your head up. Chances are, you've already lived through at least two major crashes and recessions. It's part of the rhythm of life!

What Causes a Stock Market Crash?

A stock market crash is caused by two things: a dramatic drop in stock prices and panic. Here's how it works: Stocks are small shares of a company, and investors who buy them make a profit when the value of their stock goes up. The value and the price of those stocks are based on how well investors believe the company will do. So, if they think the company they're invested in is headed for hard times, they sell that stock in an attempt to get out before the value drops.

The reality is, panic has just as big of a role in a stock market crash as the actual economic issues that cause it.

Let's walk through an example from the coronavirus pandemic that shows you just how powerful panic is. As news of the virus spread, grocery and convenience stores all across the world sold out of toilet paper in a matter of days. Was there a toilet paper shortage? Well, yes and no. There wasn't a shortagebefore people started panicking. But when people lost their minds and started stocking up on toilet paper, their actionscreated a shortage!

The same kind of panic can trigger a stock market crash. Once investors see other investors selling off their stocks, they get pretty nervous. Then, stock values start to dip, and more investors sell their shares. Next thing you know, everyone is dumping their stocks, and the market is in a full-fledged crash. Look out below!

Our point here is this: The stock market's value is 100% based on perception andprediction of the future. No wonder it feels like such a roller-coaster ride!

How Did the Coronavirus Crash Affect the Stock Market?

Let's pretend we've got a time machine to take us back to March of 2022 when the coronavirus was officially declared a pandemic (don't worry, we won't stay long). While people were binge-watchingTiger King or swarming the supermarkets to buy toilet paper, the global economy was in chaos. Supply chains ground to a halt. Entire industries shut down overnight. And the stock market crashed—big time.

Back in the early days of the pandemic, the stock market took us all on a ride. Global markets (not just here in the U.S.) took a huge plunge, triggering a short-lived bear market (where the stock market falls by at least 20%) and an economic recession in the next few months. If you were checking your 401(k) during those days, you probably felt panicked as you watched your savings disappear.

But after the initial nose dive in March, the market started to inch its way back to recovery. And by the time the New Year's Eve ball dropped on December 31, 2020, the stock market had regained all of its lost ground—and then some! Did you catch that? All of the major indexes grew in 2020:

The S&P 500 gained 15.6%.
The Nasdaq gained 43.8%.
The Dow Jones gained 6.5%.⁹

dow jones industrial average

Looking back, we can see that even the big, scary coronavirus crash didn't knock us out for long. In fact, economists are now saying the recession from the coronavirus crash was the shortest on record—only lastingtwo months!¹⁰

Will the Stock Market Crash in 2022?

Let's get one thing straight:No one can perfectly predict whether the stock market is going to crash during the rest of 2022. Just think back to everything that has happened these past few years—you can't make this stuff up!

So, will the stock market crash in 2022? All we can do is look at the things that will influence the market and your investments throughout the rest of the year. Let's dig into the specifics and where we are now.

Reasons to Feel Cautious About the Stock Market in 2022:

High inflation: Between all those stimulus checks and supply chain issues, we've seen a dramatic increase in the price of, well, everything—especially in grocery stores and at the gas pump—which has led to investors being cautious and consumers spending less.
Rising interest rates: In an effort to fight inflation, the Federal Reserve started raising interest rates in early 2022—and there could be more rate hikes on the way soon. While this could slow down inflation, it could also trigger another U.S. recession.¹¹
Tensions in Europe: Russia's invasion of Ukraine sent shockwaves around the world and could cause investors heartburn over the next few months. But if history shows us anything, the stock market usually recovers and is higher a year after major geopolitical or historical events.¹² So hang tight.

Reasons to Feel Optimistic About the Stock Market in 2022:

COVID-19 fading: As the coronavirus crisis eased, putting the Delta and Omicron variants in the rearview mirror, we've already seen more optimism, movement and spending. There's a lot of pent-up energy in our country, and people are ready to get out and about!
Unemployment falling: In March 2022, the unemployment rate improved to 3.6%—that's the lowest level since February 2022 right before the pandemic started to wreak havoc on the U.S. economy. That means more people are continuing to look for jobs and are finding them.¹³
New industries growing: Specific industries—tech, e-commerce and biotech—gained tons of ground during the pandemic and will continue to grow and give investors reason to feel confident.¹⁴

We can run numbers and make predictions all day long, but at the end of the day, we have no idea what's going to happen for the rest of 2022—no one does. So let's be the kind of people who are prepared for anything the future has in store.

What to Do During a Stock Market Crash

If the marketdoescrash again in 2022, remind yourself that you lived through another crash just a few years ago. In the middle of chaos, you've got to focus on what you can control: your attitude, your outlook and your actions. Of course, a crash is scary. Yes, you'll have to make some changes. But with the right plan to move forward, you can and will continue to make progress. Here are five ways you can respond to a stock market crash:

1. Refuse to panic.

Like we said before, panic can make the crash just as bad as the actual economic issues we're facing. Don't fall for it. Dealing with the unknown creates uncertainty, and uncertainty left unchecked can become fear. Choose to stay clear and positive with your thoughts.

2. Cut back on everything.

You can't control how Congress makes their budget, but you can control howyou make your budget! If you lose your job in the middle of an economic downturn, that means it's time to cut outall unnecessary spending ofany type.

Cancel your gym membership and avoid going on an online shopping spree! Meal plan to save money. Use up the food that you have in your pantry and freezer before you even think about eating out at a restaurant.

Focus on funding the Four Walls before spending money on anything else:

Food
Utilities
Shelter
Transportation

3. Follow the proven plan.

Rain or shine, the Baby Steps don't change. They're the proven plan for managing your money, and they work! You need to understand which step you're on and then work the plan.

If you've lost your income: Focus on piling up as much cash as you can. You can pause paying extra toward debt right now. As much as that stinks, don't worry—it's not forever. When the tough time passes—and it will—then you can start back up and pay extra on your debt.

If your income is stable: Keep right on working the Baby Steps like you were, and don't pause your debt snowball. Stay on the plan!

4. If you're investing, stay invested.

If you're on Baby Step 4, keep investing 15% of your income (unless you need to pause for a while because you lost your income). Lots of people are tempted to cash out their 401(k) or mutual funds when the market takes a nose dive before they "lose any more money." But if you pull out now, you'll guarantee a loss. Stay plugged in and ride it out to give your investments more time to grow and recover. Don't try to time the market. Focus ontime in the market.

5. Meet with an investment professional.

When there are big shifts in the market, schedule a call with your investment professional. You need specific advice for your situation—your age, your funds, the types of retirement accounts you have, and which Baby Step you're on. Ask your pro if you need to make any changes because of the crash. Don't be afraid to share what's on your mind. If you're married, make sure your spouse is on the call! Make a plan for how you'll move forward together.

And by the way, if you've been playing the investment game without a pro in your corner—don't. Connect with an investment professional in your area.

Stay Calm During a Stock Market Crash

You've got to choose to be patient and think long term here. No matter what the rest of 2022 has in store, remind yourself of the things you know to be true. You care about your family, your dreams and your future—so make your investment decisions with those things in mind. You'll do a much better job of that if you stay positive and focus on the factors that youcan control.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.