Global sell-off: Why stock markets crash - lessons from recent history

If a crash is unrelated to the economic fundamentals, it will quickly be corrected

Stock markets around the world suffered sudden, heavy losses on February 5 and 6. Following a 4.6% drop in the Dow Jones on the Monday, the Japanese Nikkei index fell by 4.6%, and European markets followed suit, with the FTSE 100 down around 2% in the first hour of trading on Tuesday. There was a rebound on February 7, but things remain turbulent. The phrase “when the US sneezes, the rest of the world catches a cold” comes to mind.

The main culprit seemed to be fears of inflation hikes in the US. If inflation