What 2021 mean for the STOCK MARKET, next crash?
2020 has been a hell of a year for almost all of us. It had provided us a virus, wars, wealth inequalities never like before, new billionaires, taken many lives, and the stock market crash, It was a good opportunity to invest though as good stocks were available for less price and those who had invested despite the volatility has made some huge return because it was one of the best time to deploy your funds in the market. But why? more on that later so, stay tuned
2021 seems to be an optimistic year, Vaccines are ready and people taking some doses, Central banks are lending money at a very low-interest rate, the stock market has recovered from the previous crash and reaching a new high so, all good back to normal? No, wait wait the economies around the globe don't look as optimistic as the stock market and that's a bad thing. In this article, we will look at how this year 2021 is going to be for the stock market and the asset class, and of course! these are speculations.
The Equity Market
All the major indexes such as S&P 500, Nasdaq, Nifty, Sensex and others have been skyrocketing and making new records frequently. But why are they rising when economics are in a recession, why are companies stock are selling at a very high price despite low earnings in the past 2 quarters. Well, this shows that the stock market is not reflecting the economy but it is the reflection of how much money is flowing into it. "Liquidity".
Governments all around the world started printing money like crazy to boost the business.
Fed provided stimulus checks to support the unemployed people but and started buying junk bonds(high-risk cooperate bonds) and with the low-interest rate, money is easily available to borrow from banks.
So, excess money started flowing into the US stock market and emerging markets such as India and Brazil, increased asset prices, and made the market overvalued. That's why the markets are rising.
Generally, the easy availability of credit and low-interest rates makes the market overvalued, Remember the 2008 housing crisis ? The housing market crashed when Fed increased the interest rate.
I am not an economist or something but I like to learn it though. Just saying by looking at the history and previous economic bubbles, there might a stock market crash once again when the fed and other central banks of the world increase the interest rate to tackle Inflation. so protect your capital, try to be rational, and don't invest based on the speculations
Be fearful when everyone is greedy and be greedy when everyone else is fearful - You know who said it W.B
The Gold Market
AHH! Gold, the safe haven, that thing which Indian households love. Have you ever wondered why the gold price keeps increasing? Here is why It's fixed, there is a fixed amount of gold on Earth, and because of supply and demand economic shit. which I will explain later in a separate blog post, actually that's interesting shit.
Okey. Gold has provided 20% returns last year since there was a crash in the equity market investors added some gold to their portfolio, as it provides hedging( if a portfolio has 2 assets and if the value of one asset increase and other will decrease and vice versa ). and gold will continue to be so. Since the equity market is on the rise, gold returns decreased in the last 2 months but It is good to hold some amount of gold in your portfolio and it depends on you
GDP Forecast (India)
Production has begun in early November last year. from large caps to SMEs have made losses due to which the Indian economy has contracted by -9.4% in the year 2020 to March 2021 that pushed India into a technical last year and analysts have predicted a V shape recovery It would take this whole year maybe even 1 quarter of 2022 to compensate for the loss and make a profit. Other countries are in a similar situation right now except China which showed a positive GDP growth.
well, It was already here for the food products in the month of September 2020 in inda, Food inflation(measured by CPI or consumer price index) was at 6.93% in the month of November 2020. This basically means that the price of food products has increased by 6.93%. Inflation has hit commodities such as steel and copper, they are at an all-time high, Might hit the service and other sectors soon.
The ultimate cause of inflation is the government printing more money, which increases the money supply in the economy, and when there is more money and fewer goods, the price of goods increases this applies to assets such as stocks too. And that's why markets are skyrocketing.
At one point when the RBI increases the interest rate or repo rate, the prices will fall by default.
Interest rate and price are inversely proportional.
More on that later in another blog post. So stay tuned and make sure to subscribe to the walth blog for more interesting and insightful content on the stock market, economics, and finance in general or you could tell us if you want to know about some topic, feel free to contact us on social media - Instagram and Twitter
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