Australia's economic position has experienced a notable shift over last few weeks and the nation's stock market appears to have shifted in turn. Understandably, many of those invested in ASX shares are likely worried the recent downturn could spell a stock market crash.
Rest assured, the ASX doesn't appear to be 'crashing' right now. Though, it's not off the cards.
Let's look at what a stock market crash is and how far away the ASX might be from experiencing one.
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Is this the beginning of an ASX stock market crash?
The exact definition of a stock market crash is subjective. Though, the consensus appears to be that ASX shares must tumble more than 20% over a short period of time for a stock market crash to be declared.
While the market has displayed plenty of volatility this year, it hasn't quite reached 'crash' levels.
The ASX experienced a correction earlier this year. The S&P/ASX 200 Index (ASX: XJO) dropped 9.9% between 4 January and 27 January – a plunge lasting slightly more than three weeks.
The tumble came amid concerns of rising inflation and resulting interest rate hikes – fears which have recently been realised.
Australia saw the inflation rate surpass 5% late last month and the Reserve Bank of Australia increased interest rates for the first time in more than a decade last week.
However, the ASX 200 is currently only 8.43% lower than the near-all-time high it reached on 21 April.
Worryingly, it's not such a pretty picture overseas. As many market watchers will know, ASX shares tend to move in line with their US-based counterparts – and those counterparts are struggling.
The S&P 500 (SP: .INX) is now nearly 14% lower than its March high. Its latest tumble appears to have been driven by the US Federal Reserve's recent decision to hike interest rates once more.
Meanwhile, the Nasdaq Composite (NASDAQ: .IXIC) is now officially in stock market crash territory. It's plummeted 20.5% from the high it recorded six weeks ago.
The tech-heavy index fell more than 4% while most of Australia slept through the US's Monday session.
Perhaps in reaction, the ASX 200 is in the red on Tuesday, slumping 1.9% at the time of writing. But not all is lost.
Here at The Motley Fool Australia, we like to take a 'glass half full' approach.
As our chief investment officer Scott Phillips said during January's correction: "The ASX has never yet failed to regain, and then surpass, its previous highs … I have a high degree of confidence that history will be a good guide."
