Just when you thought you had escaped the clutches of 2020, I’m here to bring it back into the picture. I’ll be blunt: The current stock market action has me worried. I see some similarities here that are tugging at me, so let’s take a deeper dive into what’s going on.
The overall picture is grim
When the calendar turned over to January 1, 2021, you probably felt a lot better than you did on December 31, 2020. New year, new start. Time to put the misery that was 2020 behind us. Unfortunately, our problems did not just go away with the completion of a turn around the sun. We are still battling a pandemic, and conspiracy theories are testing the strength and resilience of our democracy.
The economy is in a shambles. People are struggling to stay afloat financially and keep a roof over their heads, and businesses large and small are closing. The Fed is trying to clean up the mess, and it looks like they’ll finally get some help from the new Biden administration, which has an ambitious stimulus plan. Fingers crossed that Congress cooperates.
Stock market action last year vs. today
These issues were not yet reality a year ago. Instead, the stock market was ticking at all-time highs in mid-January after a relentless run higher that began in September 2019. Volatility was at extreme lows. After the breakout in October 2019 to new highs, what was there to fear?
Then the pandemic hit, the world screeched to a halt and the markets encountered a rout of monumental proportions. If you did not have protection a year ago, or did not sell down, you were severely punished during the worst month in the history of the stock market – it was down 34% in just four weeks.
I’m sure you see the parallels between the current stock market action and last year’s. We enjoyed new all-time highs in November and December 2020 as the stock market surged. But then came last week, when the action was poor at best. While it’s not likely signaling a change in trend, you have to be on guard for one. We are still facing a lot of uncertainty, and the markets cannot run higher forever.
Could we see a big correction or a catastrophic drop like we did in February 2020? Sure, anything is possible. It’s not likely with the Fed’s continued support. However, if you don’t have put protection working, you are putting yourself in a precarious position.
