Suffice it to say, 2020 was a volatile year for stocks. We actually warned readers in early February that the coronavirus could spark a global recession. We were, unfortunately, right.
Stocks plunged, with the S&P 500 slipping 34% in the first quarter. Despite ongoing fears about how COVID-19 would affect the global economy, stocks climbed higher. Against all odds, the S&P 500 ended the year up 15%. That optimism may be short lived though and the stock market could crash again in 2021.
How Will Stocks Perform in 2021?
Stocks entered 2020 trading at record highs. And investors were hoping it was a predictor of great things. It wasn’t. COVID-19 shut down the global economy and uncertainty about how it would impact the global economy resulted in a stock market crash.
Stocks may have rebounded but there are more than enough reasons to believe that there could be another stock market crash in 2021. In fact, the first trading day of 2021 showed just how skeptical investors are and how vulnerable the markets are.
U.S. stocks tumbled on January 4, pulling back from record levels set in the closing days of 2020. Investors are realizing that just because there are COVID-19 vaccines does not mean the pandemic is going to go away. Not only will it take a while to distribute the vaccine, but a large percentage of the population doesn’t trust the vaccine.
And viruses are known to mutate. It’s already happening in the United Kingdom. We don’t know if the vaccines will work as well against this new variant. If the new mutation spreads, it could lead to another round of emergency lockdowns. Which, as we know wreaks havoc on the economy.
Still, economic activity is expected to pick up in the second half of 2021 as more and more people are vaccinated and businesses open. The path to economic recovery, though, will most likely be long and unpredictable.
Unemployment is expected to remain elevated with many small businesses that temporarily shuttered their doors during the pandemic now permanently going out of business. This could result in weaker consumer spending and drag down corporate earnings. The drag would be short lived, but that’s all investors need to run for the exits.
Stocks are already overvalued, and this overreaction could lead to another stock market crash. If not a crash, stocks will most likely experience big swings or corrections.
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Investors faced many difficulties in 2020 and most are optimistic that 2021 will usher in a new year of growth. But there is no guarantee that will happen. The trading professionals at Learn-to-Trade.com understand that the only guarantee is there will be ongoing uncertainty, which will lead to volatility, and result in opportunity.
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