The year 2020 had been very uncertain for all of us. The outbreak of the Corona virus pandemic and the subsequent worldwide lockdown which followed had left the global economy in doldrums. The corona virus had affected the human race not only physically but financially as well. As a result, the financial markets across the world have been extremely volatile.
There was a huge crash in the markets in the first quarter of 2020 where both the indices, Sensex and Nifty plunged badly. There was a decline in almost every sector of the market. It was evident that the volatility which was worth a decade was crammed into a single year.
People were anticipating that 2021 will be a better year for them after facing the hard times of 2020. Considering that the trials of the Corona Virus vaccine are almost over throughout the world and the distribution of the same has been started, the year 2021 can prove out to be better physically. But do you think that the new year means an end to the unprecedented volatility?
Today, we will let you know about some of the viable reasons which indicate that the stock markets can crash once again in 2021.
Let us now discuss about each of these pointers in detail and help you understand about the probabilities of stock market crash in 2021.
1. Vaccine Efficacy Hype Misses The Mark
Various pharma companies like Pfizer and Moderna have actually wowed the medical community with respective vaccine efficacy, which is in the range of 95 per cent to 94 per cent. However, the investors are waiting for pharma companies to report their respective Corona Vaccine Efficacy results in the first quarter. This includes companies like Johnson and Johnson, whose vaccine is administered in a single dose when compared to two or more doses of all other Covid-19 vaccinations. It is to be noted that if any other vaccine doesn’t deliver a better Vaccine efficacy, there will be a question on the end of pandemic in 2021 which may push the market notable lower.
2. Not Enough People Receive The Covid-19 Vaccine
Returning to the normal would require somewhere around 80 per cent to 90 per cent of the population to be vaccinated for developing a herd immunity against the Corona virus. When converting the same into numbers, that is a troublingly high number. This may be another reason which may led to crashing of markets.
3. New Variants Of Covid-19 Accelerate Further Lockdowns:
A new variant of SARS-CoV-2 virus was identified in the United Kingdom last month. The mutability of the virus has huge potential for causing severe problems. Any rise in the positive cases or mortality rate can led to imposing of strict lockdowns which may ravage the economy further. The efficiency of the vaccine is also not proved against the new strain of virus. Fearing the unknown can be another big reason which may pull down the markets in 2021.
4. Emotions Get the Better of Investors
Short term traders or intraday traders in the market often overreact to a news event, and you should not underestimate the power of the same. After all growth in operative earnings is what drives the stock markets higher. But when looking into the short run, investor emotions play a very crucial role in day-to-day market activities. The same was observed in March 2020 when the effect of panic on emotional investors pulled the markets down. There are chances that the same can happen again in 2021.
5. Credit delinquencies overwhelm financial institutions
As we have discussed earlier, the chances of a new lockdown can further weaken the economy which will in-turn give rise to credit and loan delinquencies in 2021. This can be one of the worst news for the financial markets. The government has announced moratorium in 2020 as well. In case of a fresh lockdown, if new stimulus is not announced by the government, the amount of bad loans that banks are forced to contend with could exceed the worst-case scenarios.
Conclusion
It is pretty evident that the pandemic is one of the key factors which will impact the market. However, even if the markets start sowing a bearish movement, there will be opportunities generated for bottom fishing. You can take the help of a certified investment advisor to make the most out of those opportunities. It is recommended to stay away from volatile markets if you don’t have experience and knowledge about facing the same. Aggressive investments in the market should be avoided if any uncertain volatility is noticed.
