4 reasons why the stock market may collapse in the next 3 months


When the curtain closes in 2020, one of the wildest years will be listed on the stock market in the rearview mirror. Witness the fastest decline in history, at least 30%, the fastest rebound from the bear market lows to the new highs and the iconic multiple one-day nominal points gain and loss records Dow Jones industry average (DJINDICES: ^ DJI) and broad-based S&P 500 (SNPINDEX: ^ GSPC).

But I have news for the investment community: A calendar change doesn’t mean stock market concerns will just go away.

While it is impossible to predict when stock market crashes and corrections will occur, how long they will last, or how steep the downturn will be, there is a very good chance that if we experience a collapse or correction in the next three months, it could be due to the following four factors.

A folded one-dollar bill featuring George Washington was placed next to the sinking graph of a financial newspaper.

Image source: Getty Images.

1. A more restrictive restriction of coronavirus is reported

The stock market is a worrying concern if multiple states, or even the federal government, would do if President-elect Joe Biden takes the reins, entered and another 2019 coronavirus disease (COVID-19) -induced closures were needed.

For now, Wall Street seems to be fine with some states imposing stricter restrictions. After all, the U.S. economy and the forward-looking stock market are not always interconnected.

What makes Wall Street unlikely to be okay is a series of credit, delinquencies and mortgage delays as a result of further blocking measures. Keep in mind that Washington did not provide additional incentives this time, meaning job losses caused by further downtime could quickly test the response from lenders, including banks.

Financial stocks are the backbone of the U.S. economy, and further closures threaten to increase losses across the sector.

A young woman who has been vaccinated by a doctor.

Image source: Getty Images.

2. The vaccine evaporates euphoria

It is also possible that the overwhelming positive news delivered on the COVID-19 vaccine front will fade in the next three months.

In November, Pfizer (NYSE: PFE) and BioNTech (NASDAQ: BNTX) in their interim analysis of their late-stage COVID-19 study, they reported a revised 95% vaccination efficacy. Meanwhile, Moderna late-stage study of COVE resulted in an inoculation efficiency of 94.5%. These are epidemic results.

Then again, we do not know how long these experimental vaccines will provide protection against COVID-19 or exactly how many people are willing to receive the vaccine. A September survey by the Pew Research Center showed that the number of people likely to receive the vaccine has fallen from 72% to 51% since May, and those who “definitely” wanted to halve the vaccine (if available today). % to 21%. Concerns about the safety and efficacy of a rapidly developed vaccine may prevent a return to normalcy.

Distribution challenges can also occur. For example, a Pfizer / BioNTech vaccine candidate should be stored below 100 degrees Fahrenheit.

The bottom line is that the stock market is flawless in its approval, distribution and admission process. This is unlikely to happen.

A Democratic donkey and a Republican elephant on top of the American flag.

Image source: Getty Images.

3. Democrats won both seats in the Senate in the January term

The stock market could continue to fall in the coming months if candidates from both Democratic Parties win the run-down elections in Georgia.

Normally, one or two January Senate proceedings don’t have much significance. However, when Joe Biden wins the White House and Democrats retain control of the House of Representatives, Democratic Democracy swept Georgia’s two remaining Senate seats and locked Republicans and Democrats (plus independents) in a 50-50 draw. Votes ending in a draw in the Senate are decided by Kamala Harris, elected Vice President.

Wall Street expects Republicans to maintain a small majority in the Senate, leading to grandiose engagement. Bills issued to fund the federal government are likely to be approved, but corporate taxes are not expected to increase during a split congress. But if Democratic Party candidates win in Georgia, all bets on the gridlock will suddenly be taken off the table.

If Biden’s tax proposal to raise the maximum corporate tax peak to 28% from 21% were enacted, corporate income would fall by about 10%.

The person who draws an arrow at the bottom of the steep drop in the chart and circles it around.

Image source: Getty Images.

4. History repeats itself

The stock market could collapse in the next three months if history repeats itself.

Again, it is impossible to predict exactly when a repair or crash will occur. But we know that there were 13 total corrections between 10% and 19.9% ​​in the three years before 2020 following the previous eight bear markets. In many cases, these stock market lower steps are well above the three-year mark. This tells us that new bull markets often tolerate hiccups and a one or two size push is expected at the bottom of the bear market.

Historical data also shows how common regular crashes and corrections can be. According to market analysis firm Yardeni Research, the S&P 500 has undergone 38 official corrections of at least 10% over the past 71 years. We have also seen that since early 2010, the benchmark index of at least 6% has been well over a dozen steps lower.

If the mood shifted, emotion-driven short-term traders could quickly weigh themselves in the stock market.

A smiling woman is looking into the distance while holding a financial newspaper.

Image source: Getty Images.

Stay on the field

The situation is that even if the card crashes or improves in the next three months, there is no reason to head towards the exit.

While corrections are commonplace, bull markets are even more pronounced. The average correction over the last 71 years has only taken about six months, while bull markets often last for years.

In addition, each correction to the history of the Dow Jones and the S&P 500 was eventually canceled by a bull market meeting. The stock market does not come with any guarantees, but long-term investors who buy great companies during the correction period have an excellent chance of making money in the long run.

If it does crash, stay on track and ideally earn more capital for your work.