2021 Stock Market Crash…6 Reasons For and Against
Why are stocks falling and is this the start of a 2021 stock market crash? I’m outlining three reasons why a market crash won’t happen but why it might feel that way to investors. Get all the stock market news, trends and strategies you need with The Daily Bow-Tie! Sign up Free https://mystockmarketbasics.com/dailybowtie
The stock market just had its worst week since October and the worst single day since last year’s market crash. Volatility has surged and investors are wondering if this is the start of a 2021 crash in stock prices.
First let’s look at why stocks are falling, then I’ll share reasons why there will not be a stock market crash but why it could feel that way for many investors. Then I’ll give you three strategies to invest your money in a market crash.
The big story lately causing stocks to fall is surging interest rates and the potential for inflation. If inflation jumps, it could cause the Fed to hike rates further and cut off easy money programs that have taken stocks into bubble territory.
Even without higher inflation though, interest rates can cause stocks to fall because it makes bonds and other yield investments more attractive. As interest rates increase, it decreases the present value of future cash flows and the fair value for stocks. It also makes the earnings yield on expensive sectors like tech less attractive.
But I do NOT think there will be a stock market crash in 2021 for three reasons. We’re expecting 5% economic growth this year and stocks rarely crash when the economy is growing. We also could see as much as $1.5 trillion in consumer spending propping up stock prices as early as this summer. Finally, borrowing is still super-cheap on low rates and we’re expecting at least another $2 trillion-plus in stimulus.
There are a few reasons why we could get a market crash or why even a 10% correction could feel like a stock crash. The market is forward-looking so towards the end of the year, it’s going to start pricing in the 2022 economy and environment…and that could cause stocks to fall. A lot of investors are all-in on high-beta names that move two- or three-times the market so if the market falls by 15% then those stocks could crash 30% or more and take your portfolio with it. There will also likely be a rotation out of growth stocks and into value or cyclicals. While the overall market might not crash, some growth or momentum stocks could crumble.
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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