Investors are always trying to anticipate the next stock market crash. Those searching for signs of the next major downturn for the market got some evidence supporting the idea that it could come sooner rather than later, with investors continuing to worry about the sharp increase in COVID-19 cases in the U.S. and in other areas of the world. As of 11:15 a.m. EDT, the Dow Jones Industrial Average (^DJI 0.04%) was down 767 points to 33,921. The S&P 500 (^GSPC -0.16%) had dropped 65 points to 4,262, and the Nasdaq Composite (^IXIC -0.18%) was lower by 143 points to 14,284.

You can always make a bearish case for why the stock market should stop going up, at least in the short run. However, investors spend too much time trying to figure out exact timing. If you're truly worried about your exposure to the stock market, then the time to take action is before the worst of the next bear market happens. Below, we'll take a closer look at what's hitting the market today and what response might be most appropriate.

Person with hands on head in front of screens showing a stock chart.

Image source: Getty Images.

Slowing down

Many investors couldn't understand the huge gains that the stock market has produced over the past 15 months. Even as the global economy struggled under the weight of pandemic-caused lockdowns, the stock market reflected a level of optimism that simply didn't seem to be there yet. Eventually, vaccines led to reopenings, which in turn started to help lift the prospects for companies hit hard by the pandemic.

Now, though, the fear among investors is that the markets have gotten ahead of themselves. As the delta variant helps stoke rising COVID-19 case counts, the idea that the pandemic would soon no longer be a major factor in the economy is starting to lose credibility.

That change of attitude is having dramatic impacts across the financial markets:

  • Bond yields have plunged as investors seek the reliable, though minuscule, returns available from fixed income securities. Ten-year Treasury yields dropped below 1.2% Monday morning, and after having seen some upward movement in recent months, international bond yields now appear likely to remain negative in many countries throughout Europe for the foreseeable future.
  • The drop in long-term rates has hit financial stocks hard, with Goldman Sachs (GS -1.72%) leading big banks lower with a nearly 4% drop. Financials are playing a major role in pulling the Dow down by a larger percentage than other markets on Monday.
  • Signs of inflationary pressure are showing early signs of potentially reversing. Crude oil fell nearly $5 per barrel on Monday, falling to $67 per barrel and causing oil-related stocks to fall. Chevron (CVX -0.87%) was among the Dow's weakest performers, falling more than 3% Monday morning.
  • Meanwhile, some stocks are benefiting. Moderna (MRNA -0.74%) shares rose, perhaps in anticipation of greater vaccine sales, while Peloton Interactive (PTON -0.55%) also gained ground as some anticipate that more fitness enthusiasts might stay home if health risk levels increase.

Meanwhile, cyclical stocks in areas like industrials and materials are also particularly weak. The declines are coming after a generally strong performance over the past year.

Don't panic -- but be ready for what might come next

It's always hard to deal with market downturns, and in particular, the long-term rise in the Dow makes declines seem worse than they really are. Drops of 2% have always been commonplace on Wall Street, but with the Dow having jumped as far as it has, the inevitable "Dow Down 700+" headlines always look more ominous.

Panic-selling after a stock market crash almost never works out well, and that's why feeling comfortable with your current level of risk before a crash comes is so important. In particular, if you find your portfolio has a lot more invested in stocks than you thought after the big gains of the past year, it's not unreasonable to rebalance your portfolio and move some of that money out of the market before a crash. Many investors like to target certain percentages in various asset classes, and it's smart to periodically check in on your holdings to make sure gains in one area and losses in another haven't thrown your portfolio out of whack.

Monday morning's downward move doesn't count as a crash. That doesn't mean there won't be one later today, tomorrow, next week, or later this year. Regardless, though, having an investing strategy that acknowledges the inevitable fact that a crash will come at some point will definitely help you whenever that fateful day finally does arrive.