Four factors that could lead to a market correction in late 2021
If you leave it long enough, a pot of water can boil over. However, taking off the lid and giving the pot a stir can bring the water back to a nice, even boil. This is a great analogy for a market correction.
A market correction occurs when a major stock market index, like the Dow Jones Industrial Average, drops by between 10% and 20%. This drop acts much like stirring a boiling pot in that it often helps return stock prices to a price more consistent with long-term market trends.
In the long term, a market correction in late 2021 could help stabilize market prices. However, it could also lead to some short-term obstacles for your financial plan. There has been some recent speculation that there may be a market correction looming at the end of 2021 or early 2022. Why? Financial planning experts point to four factors that could trigger a 2021 market correction.
A market correction in late 2021 could be related to these four factors
There are several signs that a market correction could be coming in late 2021. For instance, the S&P 500 fell 4.8% in September, and both the Dow Jones and NASDAQ posted their most anemic showings of 2021. Clearly, these signs aren’t those of a full-blown market correction yet, but they could easily become one. Some factors that could bring on a late 2021 market correction include:
- COVID-19 — There have been plenty of economic and medical steps forward around COVID-19 in 2021. However, the rise of the Delta variant and the slowdown in vaccination numbers could cause less market confidence and falling prices. Additionally, another variant could appear.
- A jobs slowdown — It is no secret that COVID had and continues to have a dramatic effect on the job markets. That has been true both in the U.S. and worldwide. Employment numbers have been lower than expected in August and September. For instance, the Bureau of Labor Statistics reports that only 194,000 jobs were added to the U.S. economy in September. Market watchers may view these low numbers as signs that COVID is still having a greater effect on the economy than anticipated.
- Supply chain issues — It is more difficult for companies to manufacture their products if they are not getting enough supplies. Unfortunately, companies have been reporting exactly this problem over the past few months. In part, these supply chain issues could be related to a lack of employees at every point in the chain.
- Poor forecasts by companies — While the earnings for the third quarter have come in stronger than expected, there is some hesitation from CEOs about the future. This would push many markets closer to the correction threshold.
Talk to a ProVise CFP® professional about helping your finances survive a market correction and other issues
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