Stock Market Drop: Is This The Start Of A New Depression?

Everyone's heard the stories about how the Great Depression started with a huge stock market crash. Is that what's happening to the economy right now?

Stock Market drops could only be a correction, but could get worse
Drew Angerer / Getty Images

Everyone's heard the stories about how the Great Depression started with a huge stock market crash. Is that what's happening to the economy right now?

Thursday marked the second day of a sudden sharply-falling stock market. Trade markets around the world experienced dips as well.

Analysts are trying to figure out why. The quick drops may be a reaction to rising interest rates imposed by the Federal Reserve, according to the BBC. Donald Trump sounded off on the Fed Thursday, seemingly echoing the belief that interest rates have caused the markets to fall.

An ongoing trade war with China may also be a factor, and Hurricane Michael certainly didn’t help.

Still, the steep drop on Wednesday came as a surprise, and no one can point to a specific reason for the fall.

On Wednesday, the Dow Jones Industrial Average dropped more than 831 points, or about 3.2 percent. The day closed with every single stock down.

Could it become the stuff of historic legend? Is America headed toward another financial fall?

According to Fortune, big drops in the market like this are starting to become more common. Even after the Wednesday decline, the Dow is up overall for the year.

The Dow fell another 546 points, or 2.1 percent, on Thursday, CNN reports. Two days of steep drops like these can be pretty frightening, but they are also more or less normal. Sudden, quick drops like this aren’t necessarily the beginning of a huge economic downfall.

NEW YORK, NY - OCTOBER 11: A monitor displays the day's numbers before the closing bell on the floor of the New York Stock Exchange (NYSE), October 11, 2018 in New York City. (Photo by Drew Angerer/Getty Images)
  Drew Angerer / Getty Images

According to CNBC, this fall is not a repeat of the stiff downturn that markets took in 2008. It’s probably part of a common stock market cycle.

Some say that the current downtrend isn’t even a stock market crash; it’s a stock market correction. Stock market drops, also known as stock market dips, are entirely normal, reports the Atlanta Journal-Constitution.

Even in a year with overall growth, like this one, stock market drops happen. And according to strict financial definitions, this is a stock market correction and not a crash. Anything up to a 10 percent drop is a correction in the stock market, which happens after a period of time when the stock market was generally overvalued.

When a stock market crashes, it is much bigger. That’s more like the “Black Friday” crash of 1987, when the market dropped a frightening 23 percent. The market rebounded the next year. The market didn’t recover so quickly from the famous 1928 crash that led to the Great Depression. Both those crashes were much bigger than what is happening now.

Until the stock market truly plummets, it’s all just standard economics.