3 Signs A Stock Market Sell-off Is Fast Approaching

A stock market crash could be nearing because of three significant risks. Investors in the Toronto Dominion Bank stock are hopeful the bank can endure the crisis again, including the political storm in the U.S.

| More on:

A stock market crash like the all-out implosion in March 2020 is possible, and analysts believe it is fast approaching. The S&P/TSX Composite Index posted its worst one-day fall in eight decades on March 12, 2020. However, the TSX managed to stage a rally as if COVID-19 was not a bad thing.

On June 23, 2020, the index climbed 38.6% to 15,564.80. As of this writing, the pandemic remains the highest-prominent immediate risk. However, two other factors and join forces with COVID-19 to facilitate another dramatic market selloff soon.

1. Exponential increase in COVID-19 cases

If coronavirus becomes more serious and the pandemic extends further, the equities market could tank once more. According to Dr. Tedros Adhanom Ghebreyesus, Director-General of the World Health Organization (WHO), the next few months will be tough because too many countries are seeing an exponential increase in cases.

Many provinces in Canada are reporting a surge in COVID-19 cases after Thanksgiving celebrations. Experts cite fewer restrictions and increased testing capacity as the reasons for the increasing numbers. Health officials said social gatherings and inconsistent use of social distancing and masks are significant risks for spreading the virus.

2. Labour weakness

The unemployment rate in Canada is trending lower after posting a record-high 13.7% in May 2020. It has been going down every month since, indicating recovery. The rate in September was 9%, and the forecast for October is 9.7%.

If businesses shut down again due to the second wave of COVID-19, furloughs and temporary unemployment might kick in again too. A protracted labour market weakness will stall recovery. While the economy has recovered three-quarters of jobs lost, the situation is still abnormal. Millions might need to isolate once more, and for months on end.

3. Political storm

You can’t dismiss the impact of the U.S. presidential elections. Whether the incumbent wins or a new administration sits, it will still influence the stock market. Canada is “sleeping with the elephant,” so to speak.  Anything that happens in the U.S., good or bad, will cascade to the economy and the TSX.

Due for a breakout

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is an attractive investment option for both American and Canadian investors. But since the second-largest bank in Canada has a substantial footprint across the border, a significant shift in the U.S. markets could directly impact TD and other Canadian businesses.

Income investors feel comfortable owning the bank stock because of its prodigious 162-year dividend track record. As of October 23, 2020, its market capitalization is $109.68 billion, while the dividend offer is a lucrative 5.22%. The dividends should be safe and sustainable, too, given the 59.3% payout ratio. Also, the income could be for life.

Management appears unperturbed by the political uncertainty and electoral showdown in the U.S. on November 3, 2020. TD is one of the best retail franchises in North America. The bank has been executing its strategies well. Its shares are likely to break out when the economy in the U.S. and Canada improves.

Fourth risk factor

Canada’s emergency measures are ongoing to prevent a decline in consumption that could impact the economy. However, if the stimulus packages dry up, it’s another risk factor to consider.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

ways to boost income
Dividend Stocks

A 6.54% Dividend Stock Paying Cash Every Single Month

This dividend stock has everything on offer. Here's why it's a great buy right now.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

The 7.86% Dividend Stock Paying Cash Every 30 Days!

Do you want dividends that last? Consider this top dividend option.

Read more »

An investor uses a tablet
Dividend Stocks

How I’d Invest $50,000 in Canadian Dividend Stocks to Never Worry About Money Again

This Canadian dividend growth ETF pays monthly and currently has a 0% management fee.

Read more »

hand stacks coins
Dividend Stocks

TFSA Income: 2 Canadian Stocks With Decades of Annual Dividend Growth

These stocks have great track records of sharing profits with shareholders.

Read more »

woman checks off all the boxes
Dividend Stocks

3 Top TSX Stocks to Buy Now and Never, Ever Sell

Here are three TSX stocks you can buy and hold over the next decade to benefit from market-beating returns.

Read more »

Piggy bank on a flying rocket
Dividend Stocks

7%-Yield Stocks Perfect for Dividend Investing in July

Consider picking up SmartCentres REIT (TSX:SRU.UN) and another great 7%-yielder before August arrives.

Read more »

Financial analyst reviews numbers and charts on a screen
Dividend Stocks

2 Undervalued Canadian Dividend Stocks to Buy Now and Hold for Years

Given their high yields, discounted stock prices, and healthy growth prospects, these two Canadian dividend stocks are ideal for long-term…

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

What Salary You Need to Get Maximum CPP

Here's exactly how much you would need to create, and how to get there.

Read more »