There is an urban legend among some stock market participants that stock markets are rocked by a major fall every seven years. There is evidence to back this stock market behaviour, which is famously called the 'seven-year itch'.
The seven-year itch has been showing itself with regularity since 1973, when the world markets tumbled following the oil embargo of 1973. Seven years later, the markets crashed again as the US slipped into recession with high inflation, more commonly known as stagflation. Then there was the infamous Black Monday crash of October 19, 1987, that ended the leveraged buyout (LBO) fever that had gripped the US corporate imagination. This was followed by the bond market collapse in 1994. In 2001, post the tech debacle, stock markets crashed due to 9/11. Sustained subprime ballooning caused the great financial crash of 2008.
The current year is again the seventh year after the last market decline. By all indications, the seven-year itch seems to have struck again. What can be said of the above instances is that there is generally no single cause that leads to markets crashing the world over. In the 2008 crash, the markets started heating up years before the eventual crash came. Similarly, there have been a number of cautious voices that had been gathering steam recently over heated valuations in global stock markets.
Only time will tell if this market carnage will be as bad as much bad.
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