What Happens When the Stock Market Crashes?

Find out what it means when the market crashes and what to do with your stock when that happens.

By Simon Mugo

Edited by Taj Schlebusch

Published April 16, 2021.

A stock market crash refers to a significant drop in the major stock market indices. Anything greater than 10% is considered a crash, with a 20% drop being considered the start of a bear market.
The time that a crash lasts greatly influences whether it is considered a crash or a bear market. For example, during the stock market crash of March 2020, the Dow Jones Index fell 6,400 points (26%) in four trading days and was considered by many as the start of a bear market.
However, the crash did not turn into a full-blown bear market because it lasted approximately one month. If you are holding a good stock and a market crash occurs, the best course of action is to hold your stock through the crash.
The most common scenario is to have an individual stock crash of more than 20%, in which case you have to decide whether you want to keep holding the stock or sell it.
Depending on the circumstances under which the crash happened. If it were in reaction to a bad earnings report, you would have to judge the severity of the financial results and whether they warrant the selloff. Do not rush to sell your stocks on the first signs of a crash. 