Economic Headwinds Could Put Pressure on Stocks This Fall

Historically, September is the worst month for stocks when the market’s top three indexes typically perform the poorest. It’s referred to as the September Effect. Aside from seasonal behavior, there’s really no rhyme or reason for the poor performance. But this fall, stocks could struggle even more as a series of economic headwinds could put the brakes on the current rally.

What Can We Expect from the Stock Market This Fall?

First things first, 2021 has been a great year for stocks. Thanks to central banks’ easy money policy and fiscal stimulus, strong earnings growth, and the successful roll-out of the coronavirus vaccines, the S&P 500 has advanced 20%. The S&P 500 has also reported seven straight months of gains hitting more than 50 new record highs. Keep in mind, this is on top of the fantastic rally in 2020 where the S&P 500 rallied 68% and soared 71.5% from March lows.

This is probably why investor sentiment is at its highest level in more than three years and the CBOE Volatility Index (VIX, or fear index) is well below 20—a sign that investors remain confident about the direction of the stock market.

There’s nothing to suggest the stock market is going to crash, but there are headwinds that point to a slow down. Many believe stimulus spending has peaked and corporate earnings, while strong, are expected to slow through the end of 2021.

Canada’s gross domestic product shrank in the second quarter and the third quarter has started slowly. In August, the U.S. only added 235,000 jobs, far below analyst predictions of 720,000. That’s the worst reading since January.

Despite the bad numbers, Wall Street still expects the Federal Reserve to start tapering its generous bong buying over the coming months. This would make Wall Street sad, since the recent rally was juiced by economic stimulus designed to fuel economic growth during COVID-19.

Since March 2020, the Federal Reserve and Bank of Canada have been buying bonds and keeping interest rates artificially low. This has pushed bond yields down to virtually nothing and forced investors into riskier assets, like stocks.

On top of that, President Biden is going ahead with his plans to increase the corporate tax rate from 21% to 28% and raise the top personal income tax rate to 39.6%. Taken together, and we could be in for a bumpy ride this autumn.

Learn-To-Trade.com, Canada’s Leader in Stock Market Trading Courses

Stocks have been on a tear since bottoming in March 2020, and while analysts still expect equities to climb higher in 2021, the gains will be a lot more muted due to a number of economic headwinds. Not all stocks will be held back though. The trading experts at Learn-To-Trade.com can show you how to find equities that will thrive.

As Canada’s oldest and leading provider of stock market trading courses, Learn-To-Trade.com has taught thousands of investors, of every skill level, how to make trade more confidently and profit more consistently, whether stocks are rising, crashing, or going sideways.

At Learn-To-Trade.com, we understand that investors have different needs. That’s why we provide a unique, Lifetime Membership that allows you to re-attend any part of the comprehensive program as often as you’d like.

To learn more about Learn-To-Trade.com’s stock market trading course, contact us at 416-510-5560 or by e-mail at info@learn-to-trade.com.