Will the U.S Stock Market Crash in 2021?

Higher stock valuation in the U.S is trying to blow up due to some concerns of inflation fear and rising home yields. The widespread fear is that there would be an extremely severe selloff capable of crashing the stock market. The Dow Jones Industrial Average, among two other stock indices, the S&P 500 and Nasdaq Composite, is the only index still holding on to its yearly gains.

The Dow Jones Industrial Average is up 1.04% year-to-date (YTD) and it is down by 4.23% from its all-time high of 31,984 points in mid-February. On the fourth of March, the Index erased all yearly gains, and this aided traders to push the stock index into positive territory at the end of the day. On the other hand, the Nasdaq Composite index is predicted to face a harsh sell-off in 2021 and it is down by -3%YTD. 

The index is stuck in the correction territory as it dropped by over 10% from its all-time high of 13,879. All basic factors causing the stock market to dive down are the tech stock evaluation and pure feat of higher inflation.  The S&P 500 is heavily affected by tech stocks and it is this sector that is currently facing more punishments due to valuations being extremely high. For example, Apple makes up nearly 10%of the S&P 500. Other sectors such as travel airlines, banking, and energy have some decent upward moves, especially the energy sector. 

After delving deeper, it became apparent that some stocks like, Marriot Hotels, Delta Air Lines, American Airlines, Goldman Sachs, Chevron, Exxon Exxon, Citibank have done the major weight lifting recently. But companies like Amazon, Apple, Zoom, Baidu, Alibaba, Tesla and Facebook are dragging the U.S stocks lower. Traders think that the Fed will increase the interest rates which could inevitably damage economic growth as its recovery is still fragile. 

At the same time, stock speculators maintain their views that inflation would get out of control and will pass the Fed's level of comfort. This would force the Fed to take actions that will affect the asset purchase program. The stock market is expected to improve with the fundamental heavy correction modes being put in place. The coronavirus has been a major culprit for the U.S economy lowering but this is expected to improve as more people get vaccine shots. 

Hence, the inflation fear is exaggerated as the U.S economy has a solid foundation with the Fed having several strategies available to implement and guaranteed higher yields. But the tech stocks need to stop moving lower and aid the other sectors in pushing upwards.