Stock market crash 2025: What's different from the past market meltdowns?

The sweeping tariffs imposed by Donald Trump last week on major world economies has triggered a stock market correction across the globe.

 

Though a market correction is healthy and brings new investors to the markets, analysts suggest a broad-based sell-off triggered by an event, on the other hand, could result in panic selling and a prolonged risk-off phase.

 

Trump’s tariffs, according to analysts at Nuvama, seem to be wrecking ‘Pax Americana’ rather than reordering it. In just a few days post-tariffs, S&P 500 and oil are down 10 per cent and US high-yield bond spreads have widened 75–100 basis points (bps). 

 

 

Such a synchronous sell-off in risk assets occurred only in the global financial crisis in 2008 and the Covid pandemic of 2020. If left unchecked, Nuvama feels that asset class reflexivity could snowball into a crisis now, as the global economy and US private sector are weak.

 

That said, credit event risks have been a feature of nearly all the past crises such as the global financial crisis in 2008 and the more recent Covid-triggered scare in 2020.

 

While the current crisis this time too is originating in the US, there are a few differences, Nuvama said.

 

First, unlike 2008 the policy response seems to be less coordinated both between the US and global peers (retaliatory tariffs imposed), Nuvama said, and also between US treasury and Fed–which is focused on inflation rather than growth, thus risking a delayed response.

 

“Domestically, we are entering the crisis with much weaker growth. However, strong corporate balance sheets this time are comforting,” wrote Prateek Parekh, Tanisha Gupta and Jatin Somani of Nuvama in a recent note.

 

Drawing parallels with the past suggests that the markets are entering a new phase of global growth with risks of capitulation. This, Nuvama said, is unlike the post-Covid corrections (2022 and 2024) where global commodity prices were stable, but liquidity tightening caused havoc. 

 

“In the near term, markets should brace for volatility and investors should focus on capital preservation. Earnings yield minus bond yield (average of US and India 10Y) is a good guide for inflection point. Typically, during risk-off, equities tend to undershoot sharply (1SD cheap). Now, equities are still 1SD expensive compared with bonds," Parekh, Gupta and Somani wrote.

 

Four key phases of 2008 stock market crash

 

That said, the four key phases of market sell-off from the 2008 crisis according to Nuvama were as follows.

 

Markets first sold off owing to liquidity scare: High valuations coupled with rising oil prices and Reserve Bank of India's (RBI’s) liquidity squeeze sapped sentiments.

 

Second phase of sell-off owing to growth scare: The Nifty corrected 45 per cent in three months in tandem with oil and yields fell. Cyclicals such as metals, realty, industrials clocked over 50 per cent correction. The US Fed rate started to cut interest rates, but the market sell-off continued. 

 

Markets bottomed only when policy response reached a mature stage: Markets made a bottom in November 2008 after a steep correction (~60 per cent, 10x one-year forward price-earnings), cheapening valuations and policy response reaching critical mass (Fed’s QE and fiscal packages). However, they were range-bound until March 2009.

 

Reflation post-synchronous global stimulus: Emerging markets (EMs) including India and China, too, imparted large stimulus along with the US resulting in strong rebound.

 

Investment strategy

 

As an investment strategy, Nuvama suggests sectors with less cyclical demand/oligopolistic industry/input price tailwinds (FMCG, cement and telecom) and those with potential lowering of competitive intensity (private banks) should be preferred.

 

"While a recession would inflict near-term pain, it may necessitate policy coordination among G7 and a synchronised global QE to allow for expansionary deleveraging of the US. This should result in a sustained upcycle à la 2000s when the tide turns," Nuvama said.