Why has the stock market dropped and when will it recover?

Will the stock market recover its old highs in 2023?

a man in a business suit rides a graphic image of an arrow that is rebounding after hitting the low point on a grid pattern that serves as a background to the image.

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

  • ASX shares have had a rocket start to the trading week so far
  • But the stock market is still well below the highs we saw in February
  • So when will the markets be as they were?

As any investor who hasn't found a new home under a rock lately would know, the ASX share market has had a very rough few weeks lately. After climbing over 7,500 points back in February (representing a year-to-date gain of 8.8% at the time), the S&P/ASX 200 Index (ASX: XJO) promptly cratered.

By mid-March, it was back under 6,900 points, having lost close to 9% of its value peak to trough. Although the market has seen a bit of an upswing over the past few days, we convincingly remain well below where we were at the start of February.

So why has the stock market dropped so convincingly over the past few weeks, in stark contrast to the happy start it had to 2023?

Well, it's hard to put a finger on exactly. But there's little doubt that the crises we have seen with the global financial system have played an outsized role.

It all started with the unexpected collapse of the SVB Financial Group (Silicon Valley Bank) in early March. SVB is, or at least was, a specialty bank catering to startups, tech companies and other businesses that inhabited the United States' famous Silicon Valley tech hub.

It seems that the rapid rate of interest rate rises in most countries around the world (including and especially the US) destabilised SVB's finances to such a degree that it endangered the entire company.

If it was just SVB then perhaps the markets would be back to where they were in February. But SVB's collapse started something of a chain reaction, with the giant Swiss bank Credit Suisse following suit shortly after. Credit Suisse has since been acquired by its fellow Swiss bank UBS. But fears of financial contagion are clearly well-entrenched now.

So it's this banking crisis, together with high interest rates, that we can probably blame for the share market's recent woes.

And now, onto the question everyone wants to know: when will the markets recover?

When will the stock market be as it was?

Well, I have a simple answer: I have no clue. And nor does anyone else, no matter what they might say.

If someone knew how to consistently pick the tops and bottoms of any share market, they would be richer than Warren Buffett, Jeff Bezos or Elon Musk. But seeing as the global rich list is devoid of stock pickers, it just goes to show how tricky this business is.

So I'm not trying to 'time a bottom' here. And nor should you. Instead, do what has always worked in the stock market: find quality businesses you can buy for a reasonable price. That's how Warren Buffett got (and stays) rich.

And that's the best ticket that any of us have to gain real wealth from ASX shares. Don't worry about tops and bottoms, or crises and banks.

Both the stock market and the many quality shares it houses have never failed to regain previous all-time highs. That's despite global recessions, depressions, wars and pandemics. I don't think this trend will end with the collapse of a couple of banks in 2023.

SVB Financial provides credit and banking services to The Motley Fool. Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended SVB Financial. The Motley Fool Australia has recommended SVB Financial. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

Man pointing an upward line on a bar graph symbolising a rising share price.
How to invest

How to invest when the ASX hits a record high

Worried about buying at today's prices? Here's why you shouldn't be concerned.

Read more »

A man wearing glasses sits back in his desk chair with his hands behind his head staring smiling at his computer screens as the ASX share prices keep rising
How to invest

Lessons from a self-made ASX millionaire

Here's how he did it.

Read more »

A couple cheers as they sit on their lounge looking at their laptop and reading about the rising Redbubble share price
How to invest

$20,000 in savings? Here's how to target $1,000 of passive income each month

This could be the easiest way to build a meaningful passive income from the share market.

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
How to invest

The 3 rules new ASX share investors should always follow

These rules could help you generate wealth in the share market.

Read more »

Person holding Australian dollar notes, symbolising dividends.
How to invest

How to build a $1,500 monthly income stream with ASX dividend shares

It isn't as hard as you think to build a monthly income stream on the share market.

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
How to invest

How to start your ASX share portfolio with just $1,000

Investing doesn't need to be hard. Here's an easy way to start.

Read more »

Happy young woman saving money in a piggy bank.
How to invest

How I'd invest $250,000 in Australian dividend stocks to never worry about money again

Here are a number of stocks that could be top options for income investors with money to put into the…

Read more »

Warren Buffett
How to invest

5 easy steps to invest like Warren Buffett with ASX shares

It isn't as hard as you might think to invest like the Oracle of Omaha.

Read more »