The Covid-19 situation has got investors and financial analysts in a tight spot. While it is evident that the large scale lockdowns being implemented all over the world have impacted the global economy to a large extent, it is still quite unclear as to whether we are on the verge of an impending market collapse or whether the markets will pull through without too much damage. 

However, history has taught us time and again that there are certain trends and patterns that emerge which could indicate that the markets might be in trouble. 

Let’s take a closer look at a few telltale signs that could suggest the coming of a disastrous market crash 

Rapid Rise In Values Of Stock 

If we were to look at how markets behave before previous market corrections or crashes, there is a clear trend which shows rapid spikes in values of stocks or financial assets. An unpredicted rise in value is a good indicator that a sharp decline is also on the way. A few notable examples include the real estate bubble and the tech bubble. In the previous years, in numerous markets around the world, the real estate bubble has been a significant cause of markets dipping drastically once the bubble bursts. A big reason for this is that such bubbles often lead to panic selling, which, as we all know, leads to disastrous consequences in most markets.

Share Buybacks 

Another evident sign of a market crash is when big corporations with high value stocks issue debts in order to initiate a major share buyback. While with anything related to the market, the uncertainty is always high, if a number of industry leaders like Google, Amazon, or Apple to name a few, issue debts, it often results in a drastic reduction of company revenues, which is never a healthy sign for any market. 

High Degrees Of Margin Debt 

Many times, investors end up buying stocks with large amounts of borrowed money. This leads to a high degree of margin debt which can be particularly destructive for the market. The issue with such behavior is that, more often than not, this leads to a state of profit-taking as the market starts to dip and a large number of people start exiting rapidly, which can lead to a stock market crash. 

Ignoring Small But Significant Bad News 

Over the years, it has been noticed by many financial analysts and experts that one of the biggest causes of market failure is the tendency of investors to ignore bad news, especially in bull markets. As history has shown us time and again, many market declines happen due to a ‘trigger event.’ Also called ‘black swan events,’ these instances are usually revelations of unexpected bad news. 

However, the fact of the matter is, there is always some kind of trouble brewing in the global market. Unfortunately, many of these trigger events get ignored by investors, either because no one is paying enough attention to them or in some cases, it is played off as an insignificant change by analysts and investors until it’s too late to reverse or mitigate its effects. 

Increase In Mergers and acquisitions 

Many times, when the market presents cheap debts at low interest rates, many organisations tend to buy out their competition or in some cases, even acquire unrelated companies. While this may sound like a good way to improve business performance, unnecessary mergers and acquisitions often leads to divestitures as they tend to chew more than they can swallow and eventually fail miserably.