Business & Investment

Three reasons why we think the stock market may crash in 2021

I think stocks will be strong in 2021. The growth rate of the world economy is expected to be around 5%, which should provide a great background for the stock market. However, another stock market crash cannot be ruled out. Here are three reasons why stock prices could plummet again next year:

The price of good news is

One of my concerns is that there is currently a very high level of optimism in the equity market.Since then Pfizer In November, it announced that it had developed a coronavirus vaccine, and many strains surged.

I think some stocks are trading at prices that are too optimistic.Take the hotel operator Intercontinental Hotels, For example. Today, its share price is only about 5% below its pre-Covid share price in January 2020. Looking at what’s happening in today’s world, it seems too expensive for me. In reality, travel never returns to normal for years.

Given how much good news is on the market, it probably won’t get in the way of bad news to cause stocks to sell out.

Covid-19 can cause another stock market crash

Another reason I think a stock market crash could occur is that Covid-19 isn’t over yet. Just recently, we learned that there is a new strain of the virus. This can create additional challenges.

Of course, there are vaccines too. But looking at how the government has dealt with the crisis so far, I’m not sure they will. Deploy smoothly.. Most recently, Pfizer said millions of vaccines were stored because the US government had not given instructions to the company on where to send the vaccines.

Many companies continue to face challenges until mass vaccination takes place.

Market bubble

Finally, I think there are some real bubbles on the market right now. A good example is the inventory of electric vehicles (EVs). After a great run in 2020 Tesla It is currently one of the largest companies in the world. In my view, it doesn’t make any sense.

“Big Short” hedge fund manager Michael Burry recently called for the collapse of the housing market Tesla stock short.. It says something. If a crash occurs in these hilarious areas of the market, it can spread to other areas of the market.

I am preparing for the 2021 stock market crash

Well, I’m not going to rush to sell all the stocks tomorrow as the stock market crashes in 2021. After all, the crash is notorious for being unpredictable. However, I think it’s worth planning ahead and preparing for a crash. If you’re ready and have a little cash on the sidelines, a stock market crash can be a great opportunity.

For example, this time last year, about 20% of our portfolio was cash, preparing for a market crash. When volatility surged in February and March, I entered the market and gained a large share of the bargain price. This was very rewarding. We own about 10 stocks a year, and the rate of return exceeds 50%. My best performer, ASOS, Returned about 300%.

In 2021, I will take the same approach. No one knows if the stock market will crash this year. But then I’m ready …

Edward Sheldon owns a stake in ASOS. Motley Fool UK owns and recommends a stake in Tesla. Motley Fool UK recommends ASOS and InterContinental Hotels Group. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by considering different insights, Better investors than us.

Three reasons why we think the stock market may crash in 2021 Three reasons why we think the stock market may crash in 2021

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