How does inflation triggers stock market crash?

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Research Analyst disclaimer:
Name of the Research Analyst – Mr. Himanshu Sinha
Name of the narrator – CA Aleena Rais
Report Date: 21 June 2022…(read more)

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The stock market crash of 2020 has been attributed to a variety of factors, including the coronavirus pandemic, trade tensions between the US and China, and economic uncertainty. However, one factor that has been largely overlooked is inflation. The recent rise in inflation has caused investors to become increasingly concerned about the future of the stock market, leading to a sharp decline in the value of stocks.

Inflation occurs when the prices of goods and services increase over time due to a variety of factors, such as increased demand, higher production costs, or a decrease in the value of money. As inflation rises, the purchasing power of money decreases, meaning that people have to pay more for the same goods and services. This can have a significant impact on the stock market, as investors become increasingly concerned about the future of the economy and the potential for inflation to erode their investments.

The recent spike in inflation has been caused by the US government’s stimulus measures, which have flooded the economy with liquidity. This has led to an increase in demand for goods and services, which has pushed up prices. At the same time, the Federal Reserve has kept interest rates low, making it more attractive for investors to buy stocks. This has caused stock prices to rise, but the increased inflation has made investors wary of the potential for their investments to be eroded by rising prices.

The result is that investors have become increasingly uncertain about the future of the stock market, leading to a sell-off of stocks and a sharp decline in the value of the stock market. Inflation is a key factor in this crash, as it has caused investors to become increasingly concerned about the future of the economy and the potential for their investments to be eroded by rising prices.

In conclusion, inflation is a key factor in the recent stock market crash. The rise in inflation has caused investors to become increasingly concerned about the future of the economy, leading to a sell-off of stocks and a sharp decline in the value of the stock market. While there are a variety of factors that have contributed to the crash, inflation is an important factor that has been largely overlooked.