When Is The Next Stock Market Crash Coming? 8 Reasons Why It Might Be 2021

  • August 25, 2021
  • 4 min read
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Key Takeaway

A combination of a 12 year bull-run together with an highly overvalued market, not to mention an on-going worldwide pandemic, could definitely be enough to trigger a stock market crash 2021. 

Aside from a temporary dip in 2020, the bull market has been going strong for a very long time. We all know it can’t last forever.

The big question is, when will the stock market crash?

None knows of course. It’s all speculation, and while history does have a tendency to repeat itself, it’s always hard to pinpoint exactly when it’s going to repeat.

However, there are a lot of signals right now that indicate that 2021 most likely is the year when the stock market crashes. Let’s explore those indications below.

8 Reasons For A Stock Market Crash 2021

The stock market could crash for many reasons.

Sometimes, it’s completely unexpected events that trigger the crash, other times, it’s pandemics and bubbles.

In this article, we will touch on 8 paint points that could trigger a stock market crash in 2021.

1. An overvalued market

One way is to tell if the stock market is overvalued, is to look at the P/E ratio (price-to-earnings ratio).

For example, from January 1971 to June 2017, the P/E ratio of the S&P 500 averaged 19.4.

However, the current P/E ratio of the S&P 500 right now is around 40 – the highest it’s been since the dot-com bubble crash in 2000 – so there is a high probability that the stock market is overvalued and sharp drops in stock prices could occur.

Eventually, it has to correct – and since this is now way overdue, there is a big risk that a market correction could result in an intense stock market crash.

2. Long-term damage to small businesses 

Small businesses account for 62% of all private-sector jobs. Yet, despite government help, many small businesses are struggling to stay afloat.

Some have been forced to cut staff, cut services and even close their doors. 

There are indications that most of us could be returning to varying degrees of “normal” later this year, but it may take a lot longer for the small business sector to recover.

As long as small businesses continue to suffer as a result of the pandemic, the unemployment rate will remain high and be a drag on the economy.

3. Mortgage defaults

The current moratorium on foreclosures which could be holding back a tidal wave of foreclosures will be ending soon.

The 2008 market crash was triggered by mass foreclosures. 

Although the underlying cause for the crash was different in 2008, if homeowners continue to struggle to make their mortgage payments after the moratorium due to unemployment or underemployment, it could have the same result – mass foreclosures.    

4. Market manipulation

Market manipulation is not really new news because large investors and institutions have always had the power to do this because of their huge purchasing power.

What is new is that smaller investors can now manipulate the market as well. This might help induce a stock market crash.

And, we just witnessed an example of this recently with GameStop where a group of investors on Reddit’s WallStreetBets chat room banded together to create a situation where there was more demand than supply and that led to a significant price increase in GameStop’s stock price.

Now that the “how” is out there, bad actors could use the same playbook.

5. Reduction in stock buybacks

Companies use stock buybacks to re-invest in themselves by repurchasing their outstanding shares in the stock market.

As of 2020, several S&P 500 companies announced that they were reducing or discontinuing their buyback programs to conserve cash. 

This is significant because buybacks reduce the number of shares on the market and create demand for shares which tends to lift stock prices.

In fact, experts viewed the buybacks as one of the driving forces behind the bull market and anticipate more uncertainty in the stock market because of the current reductions. 

6. Misinformation

Misinformation is inarguably one of the biggest threats we face as a society today.

If it could move an armed mob to descend on the U.S. capitol in an attempt to overthrow an election, then it’s not out of the realm of possibility that it could send the stock market into a downward spiral.

7. COVID-19

COVID-19 is a wild card. While we have vaccines to combat the disease there is still a lot of uncertainty around when or if it will end and allow life to get back to “normal.”

New strains are constantly emerging that could lessen the effectiveness of vaccines and a large part of the population is refusing to take the vaccine, wear masks, or even participate in behaviors that could end or lessen the impact of the disease. 

8. Eroding public trust

The search term “will the stock market crash?” has been increasing in queries a lot lately, according to Google Trends.

For many of the reasons listed above, people are questioning whether the stock market is headed for a crash.

And, while there is no definitive answer yet, with the economy headed in one direction and the stock market headed in the opposite direction, it does present a rather puzzling set of circumstances.

Sources
AuthorPatricia Stallworth

Patricia Stallworth is an author, a Certified Financial Planner™ and the CEO of PS Worth, a financial planning and education firm. She holds a B.S. in Education, an M.B.A. in Finance.

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