Stocks To Buy When The Bull Market Fizzles Out

Just over a year ago, the U.S. stock market bottomed out following a pandemic-triggered economic shutdown. From the trough, the major stock indexes marched steadily higher. In the 12 months following the bottom, the SPDR S&P 500 ETF (SPY) gained 77%.

The Invesco QQQ ETF (QQQ), which tracks the Nasdaq 100 stock index, is up 86%. Many individual stocks, whose share prices were pummeled during the early days of the pandemic, have gained 100%, 200%, and more up from their March 2020 lows. The question now is: what will the market do for the remainder of 2021?

It seems unlikely that the broader U.S. markets can maintain the scorching upward pace of the last 12 months. In fact, the SPY ETF has gained just 4.2% year-to-date, with a week left in the 2021 first quarter. Now, you can read as many opinions as there are forecasts on whether the stock market will keep climbing, or whether it’s due for a possibly deep correction.

I am going to climb out on a limb and make a prediction outside of the mainstream: Historically, when the stock market stops going up, it drops—and drops quickly. I think 2021 will not see a significant stock market drop; however, I also don’t expect much more upside. I think the U.S. stock market indices will muddle through 2021 and end the year very close to the year’s starting values.

The main arguments for a stock market correction are the following:

  • Stocks have climbed too far too fast and are due for a pullback.
  • Stock valuations are at record levels, surpassing many of the same metrics before the 1999-2000 crash.
  • Rising interest rates could draw interest and money out of stocks into safer investments that now pay some interest income level.

The case for the stock market not to crash:

  • The Federal Reserve will do everything in its power to keep the markets propped up. And the Fed has a lot of power. They know that if the market starts to fall, the bad news will reverberate through the whole U.S. economy.
  • The economy is awash in money looking for an investment home. For most individual investors, the stock market remains the only game in town.
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Disclaimer: The information contained in this article is neither an offer nor a recommendation to buy or sell any security, options on equities, or cryptocurrency. Investors Alley Corp. and its ...

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