What Do Experts Think of a Stock Market Correction in 2021?

Will stock markets correct this year as well amid growing COVID-19 cases in many parts of the world? Let’s see what experts have to say.

| More on:
thinking

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

We have come a long way from the epic stock market crash in March last year. TSX stocks are up almost 50% since then and are lingering close to all-time highs.

However, every time markets reach new highs, there is a growing fear of a correction. Interestingly, the recent rally has been an incredible one with the pandemic in the background, so it’s little wonder investors are all the more anxious this time.

Will markets correct this year amid growing cases in many parts of the world? Let’s see what experts have to say.

Stock market correction 2021

The world’s biggest money manager, BlackRock CEO Larry Fink, is incredibly bullish on the markets. He thinks that even if stocks are at record highs, several factors could drive them higher. Stimulus packages, earnings growth, and excess cash with consumers will likely play well for the markets in the short term.

JP Morgan’s Jamie Dimon sees an economic boom that could run into 2023. In his annual letter to shareholders last week, he forecasted strong growth driven by aggressive stimulus spending, favourable monetary policy, and vaccinations.

The investing conglomerate Berkshire Hathaway continues to sit on over US$145 billion in cash. Some have speculated that Warren Buffett is suspicious about the market recovery or lack of worthy opportunities. However, his view on markets seems to be mixed with his heavy bets on energy and defensive bets on telecom.

Why stocks might continue to soar higher

Stock markets certainly look strong, and a crash like last year seems highly unlikely. Amid economic re-openings, although partially, corporate earnings growth will be much higher in 2021 compared to 2020. Once people are allowed to spend, the excess cash, which they have saved due to lesser avenues to splurge, will push the economy even higher.

U.S. banks have reported solid earnings growth in Q1 2021. The reverse of loan-loss reserves will most likely be deployed for growth, highlighting the early stage of economic recovery. Canadian banks will also likely follow suit in the next few months.

Although stock markets look overvalued and ripe for a correction, the upbeat corporate earnings growth justifies the premium valuation to a large extent.

Despite the fact that bullish odds seem to outweigh at the moment, challenges remain. Higher inflation could jeopardize the ongoing stock market rally. Notably, slower vaccinations and newer versions of the virus also pose serious risks for stocks.

It makes sense to bet on these rallying markets for the longer term. The pandemic will be history, perhaps in one, three, or five years from now, and stocks will be sitting on record highs. Consider this top TSX stock for the long term.

Today’s top TSX stock

Air Canada (TSX:AC) has alleviated much of the risk with its recent larger-than-expected bailout package. It has clinched a lucrative deal by gaining a $5.9 billion — two years of liquidity — against giving 5% of equity to the Canadian government.

While Air Canada’s challenges are far from over, I think bankruptcy is not a concern anymore. Its top line will likely start recovering in the next few quarters, which could help lower its cash burn.

Its dominant market share and operational efficiency might fuel faster-than-expected recovery post-pandemic. AC stock has soared almost 20% so far in 2021. Notably, improved growth prospects will likely drive AC stock further higher.

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 Vineet Kulkarni has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short June 2021 $240 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).

More on Dividend Stocks

Dividend Stocks

Passive Income: 3 Top Canadian Stocks to Buy for Monthly Dividends

Companies such as Pembina Pipeline and Killam Apartment REIT pay investors monthly dividends, making them top bets for income-seeking investors.

Read more »

Dots over the earth connecting the world
Dividend Stocks

3 of the Top-Growing Stocks on Earth

Market volatility remains high in Q3 2022, but it’s easy to identify the top-growing stocks on Earth.

Read more »

Profit dial turned up to maximum
Dividend Stocks

1 Undervalued Canadian Dividend Stock to Buy for TFSA Passive Income and Total Returns

This cheap Canadian energy stock provides an attractive dividend yield for TFSA passive income and a shot at some big…

Read more »

money cash dividends
Dividend Stocks

Want Passive Income? 1 TSX Stock for $8/Day in Dividends

If you need cash right away, then this TSX stock can make you passive income from a stable dividend that…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

Canadian dividend stocks make for great long-term buy-and-hold investments.

Read more »

value for money
Dividend Stocks

3 Incredibly Cheap Dividend Stocks to Buy for Dependable Passive Income

Now is an excellent time to load up on Canadian dividend stocks. Here are top picks that are all trading…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 Simple TSX Stocks to Buy With $25 Right Now

Canadians with capital of as low as $25 can purchase three simple stocks right now and earn recurring passive income…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

2 No-Brainer U.S. Stocks for Investors in August

Here are two undervalued U.S. stocks to diversify your investment portfolio. They both pay safe and growing dividends!

Read more »