Next Stock Market Crash Prediction - Financhill

Next Stock Market Crash Prediction

Next Stock Market Crash Prediction: Spring 2020 brought an unprecedented stock market crash that quickly rebounded to new highs. Some believe it’s only a matter of time before the market crashes again, and they’re probably not wrong.

Although this most recent crash was different than others, it’s not the first time the market had issues. In fact, we have over a century of data to analyze and make the next stock market crash prediction.

The Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 all reached record highs in February before experiencing the largest single week decline since the 2008 mortgage crisis.

Then in March, the market shed even more value, setting the stage for companies around the globe to report second quarter losses. It caused the federal government to step in with the CARES Act, which provided economic relief and kept the markets flowing.

If you’re afraid of the next stock market crash, here’s everything you need to know to stay safe.

Markets Don’t Repeat – But They Do Rhyme

You’ve heard the phrase, “Those who cannot remember the past are condemned to repeat it?

While the 2020 stock market isn’t a direct repeat of Great Crash of 1929, there are plenty of similarities in how the market is reacting. Let’s explore the market and crash that led to the Great Depression. It also had record unemployment rates for its time.

The 1920s were known as the “Roaring Twenties,” due to rapid economic growth and social change. Modern technology was expanding industry, and Americans (along with citizens of other leading nations) were breaking free from tradition to embrace it.

Motion pictures and radio technologies broadcast music, entertainment, and news of a growing economy. Women suffrage and the Harlem Renaissance pushed for equality, and prohibition was in full swing.

The market hit its peak on September 3, 1929, before the Dow crashed on October 28, known infamously as Black Monday. Some problems blamed for the crash include easy access to credit, raised interest rates, and overconfidence in the market.

That initial drop was only one event in a years-long slide into the Great Depression. While the market tried to recover (and temporarily did), decreases in investment and consumer spending drove the market to a fraction of its price over the course of four years.

We’re already seeing parallels in the post-COVID market. Government stimulus held the market up through the end of the year (or at least through the November general election). But consumer confidence is shaken, and businesses (especially small businesses, although nobody’s immune to the covid economy) are already struggling to survive.

There’s a good chance we’ll spend the next five years struggling with an economic downturn, and we’re heading into the worst month.

What Is the Worst Month in the Stock Market?

It wasn’t just October of 1929 that went poorly – the stock market crash of 1987 was similar in many ways. It occurred on October 19, 1987, a date also known as Black Monday.

The Dow Jones Industrial Average (DJIA) dropped 22.6 percent that day, which was the largest drop in history until that point. Bad programming of early computer trading models was largely blamed for this drop.

October was also a bad month in 2008 as the Lehman Bros, Morgan Stanley, and other financial bankruptcies a month prior led to massive losses in the DJIA and S&P 500 in October of over 20 percent.

This led to the Great Recession, where stock prices declined consistently for several years. Although there’s an entirely different reason for current economic conditions, we’re seeing some similar problems emerge heading into October 2020.

The first stimulus in the form of the CARES Act was relatively quick. Both sides of the political fence are jockeying for position on the second, however, and FEMA funds ran out mid-September for those depending on the federal boost in unemployment. PPP loans are dry after $175 million in loan fraud, with instances up to $62 million each, and the economy is a dog-eat-dog world. Perhaps, the only reason October will not be the worst month of the year is because of the November 2020 elections.

According to data compiled by Kiplinger, the stock market is a great indicator of who will remain in office. If the market is good in the three months leading up to the general election, the incumbent party tends to win.

This strongly incentivizes Republicans to prop the economy up with an economic stimulus that’s only guaranteed to last through November, and that means we may not see a crash until early next year, if not October 2021.

Of course, the market isn’t just being artificially inflated through government stimuli, it’s also kind of a misnomer that it’s even recovering at all.

Is the Stock Market Going to Crash Again?

Most businesses aren’t doing well in 2020, and some sectors like retail are especially hard hit. But while brick and mortar shut down, ecommerce picked up, giving a ton of money to the FAANG companies.

If you’re unfamiliar, this is Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Alphabet (NASDAQ:GOOGL).

Together these companies are in rare company in outperforming the market post-coronavirus, but that’s not guaranteed to continue through 2021.

There’s also the real estate market to consider. Both federal and state governments forbid defaults in the real estate market through the end of 2020, and there’s no telling how this will affect the economy in 2021.

Neither the consumer nor commercial real estate markets can sustain with eviction and foreclosure moratoriums in place. Even a good holiday season doesn’t mean problems aren’t on the horizon.

Next Stock Market Crash Prediction: The Bottom Line

The real answer is that we’re unlikely to experience a massive spike like March 2020, but the 2020s as a decade are unlikely to be as roaring as they were 100 years ago and may be accompanied by a stock market crash or two if history is any indicator.

Instead, we’re facing a shrinking market that we can’t even begin to understand until the stimulus training wheels fall off. Proceed with caution.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.

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