If Surging Inflation Triggers a Market Crash, History Says Investors Should Do This 1 Thing First

Inflation has been surging, prompting the Federal Reserve to consider rate hikes. However, a market crash could be a result of these higher inflation rates. History suggests that during such scenarios, investors should refrain from selling their stocks once the crash begins. This is because doing so often locks in losses, and recovery periods usually precede the market's all-clear signal.

Inflation-driven crashes tend to be prolonged and not as abrupt as those caused by other factors, like the COVID-19 pandemic or the 2025 "Liberation Day" crash. The S&P 500 fell about 25% in 2022 due to aggressive rate hikes by the Fed to tackle inflation. It bottomed in October 2022, even as inflation remained high, and started hitting new highs in January 2024.

Research from The Motley Fool indicates that the market often experiences significant gains before a recession ends. Staying invested in a diversified portfolio becomes crucial during such times, as cash holdings lose value due to inflation. While predicting a crash's timing and duration is challenging, history advises that staying put and not selling during a market downturn is the most probable route to long-term success, regardless of inflation or not.