The entire stock market has risen enormously during 2020 and the beginning of 2021 and many shares have made one hundred percent increases. It seems that the bull market has slowed down now. NASDAQ 100, which follows the technology sector very closely, does not want to go back up in the same way as before. The big IT companies are having a hard time to maintain their valuation.
What does this mean?
Have we reached the turning point now? Should you sell before you lose everything you have? These questions come to mind easily when you get a little nervous about the red numbers in your portfolio. The turnaround from 2020 was strong, also called recoil now in the face of the strong rise. But one should keep in mind that the interest rate situation in the US has been adjusted and is affecting investors negatively. On the other hand, the $ 1.9 trillion aid package, approved by the Senate, will have consequences. With more money in circulation, they can find their way into the stock market immediately.
Stock market crash 2021: How nervous should you be?
Lying sleepless at night because your purchase price is way too high is never a good idea. Because you will only feel bad and constantly think about it. One of the current problems is that valuations are starting to matter for real again. The glamorous days when everything was going up just because of expansion of the money supply, are sadly over. Valuations are real. The companies must go back to their fair value and the market knows this. It means that eventually the market will correct itself and it has already started to do so.
It even started with Joe Biden, but is it his fault? Well his economic policies are certainly somewhat different from Trump’s and therefore he plays a key role in this. Now could Biden have countinued on the rocket to the moon and further? Probably not, which means that the inevitable crash is coming sooner than later.
The market is not so optimistic anymore because of the inflation rates. We are in a danger zone where it could go really bad. The tech industries have a high risk of going down and lose its ridiculous valuations. Then there is the FED, which seems that it is very unclear how their fiscal policies will continue later this year.
Will the FED keep the interest rates low?
The FED:s role is essential for the stability in the stock market. The issue with the stimulus packages and the massive expansion of the FED:s balance sheet during the pandemic, still is not solved. If interest rates go higher it will affect growth severely. So how can a situation be created where the interest rates are in the sweet spot?
Is a real stock market crash going to happen in April?
The interesting thing about this particular downturn is that some companies have received an absurd valuation at the time of writing. For example, some shares that do not even have a basis for sales figures have multiplied the valuation compared to what it ”should” be. Can you really defend Tesla’s P / E ratio of around 1,000?
This decline is probably not as big a crash as in April 2020. But it could quickly become a stock market crash in 2021, under certain circumstances.
- If it turns out that the vaccine against the mutations of the corona virus will not help now in the spring and summer of 2021.
- There is a real threat of inflation and when inflation gets a grip, it usually is very difficult to slow it down and then interest rates will go up. Depending on how much they rise, it could be devastating to the economy which is already fragile.
- Larger institutions are more optimistic about speculating in cryptocurrencies, currencies, precious metals and oil, instead of stocks. Which mean that if they pull out – you’ll see a major difference in valuation for many stocks.
- Coronavirus is definately not over. Concerns over a new wave is still valid and as many countries report. Especially as Europe already are in a third wave.
Stock market crash 2021: Future
The crash in the US continues in the technology sector, 10-year interest rates have risen and uncertainty on the market. The Biden Harris administration seems to have scared investors away from the market.
We will only get the answer after the fact, unfortunately, and it may well be that there will be a deep decline due to the reasons above. If the vaccine is protective against the new mutations, and somehow faith is restored and inflation does not go up. Yes, then we would have a good chance of coming out unharmed.