It's turning into a pretty horrid week for the S&P/ASX 200 Index (ASX: XJO) and many ASX shares. The ASX 200 started the week at just over 9,000 points – a psychological threshold that the market has continuously traded above for more than a month. However, after a 1% drop on Tuesday, a further 0.1% decline yesterday, and a nasty 1.5% drop so far this Thursday, the index is now sitting at just 8,777 points. As such, many investors may be wondering whether we are seeing the start of a stock market crash unfolding in real time.
Let's dig into that uncomfortable question.
Well, it's no secret that the markets are currently rattled. It's not hard to see why. There are still some positive aspects of the global economy, of course. For example, corporate investment, particularly into AI infrastructure, remains elevated by historical standards in some corners of the global economy.
But the potential negatives seem to be overtaking this optimism in the minds of investors around the world. There are many troubling developments to point to here.
For one, the situation in the Middle East remains unresolved. Various tit-for-tat moves between Iran and the United States have kept the Starits of Hormuz effectively closed. Oil prices are responding accordingly, with Brent crude oil now back over US$101 a barrel. High oil prices spill over into the costs of transport, production and most other economic inputs, as well as dampen economic activity throughout the global economy.
Higher oil prices also increase inflation, which we'll touch on in a moment.
So there's that.
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What could cause an ASX stock market crash?
Additionally, investors in the global bond market have also begun to bid up the price of government debt across the board. That includes US government debt, as well as Australian bonds.
That might not sound consequential. But it has profound implications for investors. High bond prices reflect a loss of confidence in those governments' fiscal foundations. That's not great news for a world that is reliant on the US economy and the supremacy of the US dollar for stability and growth.
These concerns seem to stem from ever-widening budget deficits, as well as sticky inflation. Inflation is still well above where the governments of both the United States and Australia want it to be. And, as we touched on above, it could get even worse if oil prices keep climbing. Australia has already had three interest rate rises in 2026, and markets are bracing for at least one more. Although this may eventually tame inflation, it will come with a cost to households and businesses across the country.
All in all, we have a potentially potent cauldron of factors that could bode very ill indeed for the global economy. So it's perhaps no wonder that the markets seem to be losing confidence, and fast.
Foolish takeaway
Now, whether the markets will continue to drop, and even hit correction or crash territory, is something that no one can predict. The markets may well bounce back on the back of some positive development in the Middle East, or within any other arena that we've discussed. Or, things could just keep getting worse.
I think investors should be preparing themselves for either scenario. It's important to wargame these scenarios before they happen and avoid decisions you may later regret (selling shares during a crash, for example). So if you're worried about a potential stock market crash, today is the day to take stock of your portfolio and draw up a battle plan.
