ASX shares are tumbling, but is it an actual stock market crash?

Here's what a market crash is and the lowdown on whether the ASX is experiencing one.

| More on:
a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The ASX 200 has tumbled more than 8% from its most recent high, but that doesn't indicate a market crash
  • Generally, a stock market crash is declared following a fall of more than 20% over a period of days, weeks, or sometimes months
  • While the ASX 200 looks relatively safe now, markets in the US are inching closer to 'crash' territory

Australia's economic position has experienced a notable shift over last few weeks and the nation's stock market appears to have shifted in turn. Understandably, many of those invested in ASX shares are likely worried the recent downturn could spell a stock market crash.

Rest assured, the ASX doesn't appear to be 'crashing' right now. Though, it's not off the cards.

Let's look at what a stock market crash is and how far away the ASX might be from experiencing one.

Is this the beginning of an ASX stock market crash?

The exact definition of a stock market crash is subjective. Though, the consensus appears to be that ASX shares must tumble more than 20% over a short period of time for a stock market crash to be declared.

While the market has displayed plenty of volatility this year, it hasn't quite reached 'crash' levels.

The ASX experienced a correction earlier this year. The S&P/ASX 200 Index (ASX: XJO) dropped 9.9% between 4 January and 27 January ­– a plunge lasting slightly more than three weeks.

The tumble came amid concerns of rising inflation and resulting interest rate hikes – fears which have recently been realised.

Australia saw the inflation rate surpass 5% late last month and the Reserve Bank of Australia increased interest rates for the first time in more than a decade last week.

However, the ASX 200 is currently only 8.43% lower than the near-all-time high it reached on 21 April.

Worryingly, it's not such a pretty picture overseas. As many market watchers will know, ASX shares tend to move in line with their US-based counterparts – and those counterparts are struggling.

The S&P 500 (SP: .INX) is now nearly 14% lower than its March high. Its latest tumble appears to have been driven by the US Federal Reserve's recent decision to hike interest rates once more.

Meanwhile, the Nasdaq Composite (NASDAQ: .IXIC) is now officially in stock market crash territory. It's plummeted 20.5% from the high it recorded six weeks ago.

The tech-heavy index fell more than 4% while most of Australia slept through the US's Monday session.

Perhaps in reaction, the ASX 200 is in the red on Tuesday, slumping 1.9% at the time of writing. But not all is lost.

Here at The Motley Fool Australia, we like to take a 'glass half full' approach.

As our chief investment officer Scott Phillips said during January's correction: "The ASX has never yet failed to regain, and then surpass, its previous highs … I have a high degree of confidence that history will be a good guide."

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

two men smiling with a laptop in front of them, symbolising a rising share price.
Broker Notes

These ASX 200 shares could rise 25% to 60%

Analysts think these shares are top buys and could rise materially.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors finished the trading week on a sour note today.

Read more »

Happy teen friends jumping in front of a wall.
Share Gainers

4 ASX 200 stocks smashing the benchmark this week

Investors are sending these four ASX 200 stocks soaring this week. But why?

Read more »

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Broker Notes

Bell Potter says this growing ASX 200 stock can rise over 40%

Big returns could be on the cards for buyers of this stock.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Share Market News

Which delivered superior returns in FY25: CSL, A2 Milk, or Telstra shares?

We review the share price growth and dividend income delivered to investors in FY25.

Read more »

Woman with an amazed expression has her hands and arms out with a laptop in front of her.
Share Gainers

Why IGO, Johns Lyng, Lynas, and Web Travel shares are pushing higher today

These shares are ending the week on a high. But why?

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

Why Imricor, Ora Banda, Ventia, and Vulcan shares are dropping today

These shares are ending the week in the red. But why?

Read more »