Since the start of 2020, the stock market has experienced two major pullbacks. In February and March, the coronavirus-fuelled sell-off resulted in the stock market crashing 30%. By August, the stock market had erased all of those loses and reached a new record. In September though, stocks experienced another sell-off, this time cratering a more modest 10%.
Those two events shattered investor confidence, but another, bigger crash is looming, one that analysts say could result in an 80% stock market crash.
Is the Stock Market Going to Crash Again?
The stock market has made impressive returns in 2020, but those gains are in the process of being seriously wiped out. According to some on Wall Street, we’re going to experience another major financial crisis, and it could be the largest financial crisis in history, it will punish stocks and involuntary debt liquidation.
The first phase of the stock market crash allegedly began in March after the stock market bottomed. It includes a “melt-up” scenario where the S&P 500 advances to between 4,200 to 4,500 points. At the time of this writing, the S&P 500 has rallied to around 3,500. Over the same timeframe, the Nasdaq could hit 15,000; it’s sitting at 11,700.
What could make the S&P 500 and Nasdaq rally to those levels in the next two to three months? The passage of an economic stimulus package, which could result in bullish investors sending stocks considerably higher, and an overgenerous monetary policy by global central banks.
The second phase of the stock market crash is expected to start in 2021. Stocks will crash on the heels of a huge number of bankruptcies, involuntary liquidations, and bank failures. The Federal Reserve, which is reactionary, not anticipatory, will respond to the stock market crash by expanding its balance sheet to as much as $20 trillion. For comparison sake, the Feds balance sheet is at $7 trillion. Last year it was at $4 trillion.
Catalysts that are expected to result in a stock market crash include a lack of government assistance, a massive build-up of debt, an ineffective central bank, and time. A lot of businesses are hanging on, but barely, with many not seeing an ounce of revenue since March.
Wasn’t the Stock Market Crash in March the Worst of It?
The coronavirus-fuelled sell-off in March was big, but it doesn’t mean stocks aren’t going to crash again. If anything, the March sell-off has given investors a false sense of security. In fact, the March stock market crash was just a blip on a much larger trend that’s been in the making for years.
Because of the coronavirus pandemic, global economies have been running at a fraction of normal capacity. This has resulted in businesses amassing enormous amounts of debt. Moreover, the leverage that the banking system is based on will eventually start to falter.
Because of the infusion of cash from the Federal Reserve and other central banks, there is a sense of calm on the stock market. That everything is going to be ok. Yes, the economy is showing signs of recovery, but that doesn’t mean the entire economy is benefitting. A full recovery is a long ways away. On top of that, the financial crisis is not localized to the U.S., it’s worldwide. Any kind of bust would send a domino effect throughout the global economy.
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According to some analysts, two major events over the next year, both bigger than anything we’ve seen since World War II, will results in a stock market crash. Its speculation, but it’s rooted in historical facts that have resulted in other stock market crashes. Don’t let a potential stock market crash dissuade you from investing. The trading professionals at Learn-To-Trade.com can show you which investments go up during a stock market crash and which ones to avoid.
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