This is serious question, not a rhetorical one: IF you consider this market overvalued and expect it to drop sharply, what could be the trigger? (It seems like global depression and a still uncontrolled epidemic aren't enough.) I ask because I'm sitting on more cash than usual for me and wondering if it makes sense to keep sitting.
PS IF you are someone who had perfect market timing and got fully invested in April, super congrats to you, but bragging about your brilliance won't count as a useful answer.
Comments
Other possibilities:
2. This V shaped recovery turns into a W, either because stimulus peters out or we get a second wave like the Spanish flu.
3. A disputed result in the presidential election leads to chaos and disorder in November, crippling both stimulus and virus-fighting actions (if those are indeed still needed)
4. A banking crisis, maybe starting in emerging markets or one of the weaker Southern European countries, and stimulus-weary governments don't act fast enough to snuff it out.
5. Hints emerge that a Biden adminstration is going to make Elizabeth Warren Treasury Secretary and / or adopt an aggressive antitrust policy regarding the tech giants
6. Fed starts dialing back the QE a little too soon.
I don't think any of these are all that likely, but that's what I come up with.
I don't know that politics and taxes and policy will enter into it that much. I expect that investors will be extremely glad --- but temporarily --- to see Trump thoroughly repudiated. If that happens.
Again, may well be confirmation bias and other motivations.
Go Pack Go, Derf
I’d take exception to the wording. Of course, any market can “correct” (financial stocks, technology, emerging markets, gold, real estate). Let’s assume you are talking about the broad U.S. stock market as represented by the S&P 500 and other indexes. One need not be a bear to expect a stock market correction at some point. They are healthy and necessary to efficiently functioning markets. And, “correction” should not be confused with “crash”. The former tends to be quite temporary. The latter can set investors back for several years.
This question is nearly impossible to address. I don’t worry about corrections. Some markets saw a 30% correction only a few months ago. It turned out to be a good buying opportunity. A “crash” is an entirely different matter. It can result in sector losses of 50% or greater, grind on for years (occasionally decades) , and seriously damage many investors. Crashes tend to cause significant changes in investor psyche and this alone becomes a factor in how valuations are perceived.
What might cause a crash?
- Interest rates across the spectrum rising.
- Reactionary belt-tightening by Congress and the Executive branch - a slashing of federal spending combined with higher taxes (highly unlikely in a Pres. election year).
You pretty much list the biggies. However, I see some of these as givens.
1. The vaccine 'promise' won't matter because at this point, not enough people are going to take it. feh. Wifey and I got our flu shots day before yesterday, but I won't get a Covid-19 shot at least until fall of 2021 and maybe not then. I no longer trust anything coming out of Washington and the FDA. Any vaccine they approve will be on a scale with injecting rat poison or drinking bleach. I did hear someone suggest paying Americans $1000 each to get the shot and this is actually a very good idea. You get immunization AND stimulate Aggregate Demand.
2. 2nd Wave is a given because we're so damn dumb and with gridlock in DC, I see nothing in the way of additional stimulus.
3. Nancy becomes President on January 21. Seriously, you know damn good and well, that Trump is going to have to be cuffed and physically removed from the White House. Sorry, but I see blood in the streets. Let me be perfectly clear, it's been 52 years since Vietnam and I finally had to go buy a GD gun. I had to arm TF up and I'm not happy about it. And not because of ANTIFA, but because of the militias and nazi groups running around playing GI Joe. These scum are too stupid to become Police Officers and too chicken shit to enlist. It's time to disarm them and the rest of the country. Ban all assault weapons, high capacity magazines and silencers. Do it state by state by referendum and city by city. Oh, and start with the schools. If government buildings can be gun free, why not the children in school?
4. Eventually the dollars' reserve status goes away but maybe not in the immediate future.
5. feh. Liz Warren is our best hope at the Treasury.
6. Nope. They'll keep pumping air in the the balloon that's full of holes and until #4 comes to pass.
and 7. Something bad happening. The Black Swan event that we're not aware of yet. How about war with China? Trump is desperate and when an animal is cornered they can be very dangerous.
That all said, congratulations to all of you that have figured a way to ride this bull and make some money. A lot of money has been made. NOW PROTECT IT.
and so it goes,
peace and wear the damn mask,
rono
I think only about a third of the SP stocks are up for the year and most of the gains are FAANMG. Consequently if anything happens to get people to stop paying 50 to 300 times earnings for these things, it will be all downhill.
The market is up because 1) Federal reserve says it keep rates at zero for years, therefore increasing the market multiple ( currently at dot.com levels) 2) Stimulus bill kept consumer buying up 3) Belief that an effective vaccine is soon to come
For this to continue we have to see
1) Earnings meet the baked in assumptions of $165 S&P 500 2021 earnings
and $185 2022
2) No delayed, double-dip recession ie no resurgence of Covid this fall with the flu. I think this requires a vaccine that is at least 70% effective and most people get it. This is unlikely by December. Still it will be years before Hotels and airplanes are back at 2019 levels.
3) Low inflation and continued Fed easy easy money. What if they finally wise up to the fact that zero interest rates do not increase employment, just inflate stock prices, leaving millions in the dust ? Look at "taper tantrum"
4) No major second Black Swan. Candidates shooting war in China, massive defaults in Chinese banking system ( all very possible) or something totally unexpected ie 9.0 earthquake Major hack taking down electrical grid etc etc
5) Major fight over close election with Trump getting support form the military to stay in office and blood in the streets, or military having to remove him in shooting war with right wing nuts
Much needed overdue corrections? Will it go 10-15% lower?
As I stated before i will take the COVID vaccine when It is available. We took the flu vaccines several ago. The coming fall and winter will drive people indoor which could make the COVID situation worse.