Is the US Stock Market Due for a Bear Market in November 2021?
The US stock market remains a subject of much speculation, especially as we approach November 2021. Following the growth of businesses slowed by the COVID-19 pandemic, consumers have played a significant role in the economy, accounting for around 70% of economic activity. With consumer accounts at their highest levels in decades and job growth also reaching unprecedented heights, the unemployment rate is now at its lowest point in years. Additionally, Fed interest rates are at a very low level, and there is a massive consumer demand that merchants are struggling to meet, particularly due to shortages and the seasonal effects of Christmas shopping. This market looks very bullish.
However, no one can predict with certainty what the markets will do in the future. Some individuals are adept at guessing market movements, but they will not reveal their predictions publicly until they are forced to do so, often at a time when their information is less valuable.
Understanding Market Corrections
Just because the stock market has experienced interest rate hikes or rumors does not automatically equate to it being in a bear market or a recession. The recent 3000-point drop might appear substantial, but when viewed in the context of the market's long-term trajectory, it appears more like a correction. For instance, since the start of the 2015 presidential election, the Dow has risen from around 17,600 points to a peak of 26,600 points—representing a 9,000-point rise. A 3,000-point drop therefore feels more like a third of the recent correction.
When viewed from a longer historical perspective, the market's recovery since the 2008 crash—from around 6,600 points to its current levels—represents a 20,000-point bull run with several corrections in between. This 3,000-point drop thus appears to be merely a 15% correction, highlighting the important context in which market fluctuations must be understood.
Trump Tax Cuts and Future Outlook
Recent tax cuts, particularly those implemented by President Donald Trump, are seen as a bullish event for the market, representing trillions of dollars in corporate savings. These tax cuts are expected to boost the market for the remaining years of his administration, regardless of his exact term length. To anticipate a recession, one would need to find an event on a similar scale that could counteract these positive trends, but such an event is not readily apparent at present.
Is the Market Headed for a Bear Correction?
Some experts predict that the market might be entering a bear market, citing the SPY (SP 500 ETF) failing to make a new high. However, this could change rapidly, and another round of quantitative easing (QE) from the Fed might occur. Announcements from Trump or the Fed about QE and its impact could cause inflation to rise again and halt interest rate increases, which had been discussed. Despite this, it is advised not to heavily bet on any one outcome, as market movements are highly unpredictable.
The US stock market continues to be a topic of intense scrutiny, and investors must consider a variety of factors, including economic data, central bank policies, and political climates, to make informed decisions. Whether or not it heads into a bear market, understanding the nuances of market corrections and long-term trends will be crucial for navigating the complexities of the market.