2021 is rapidly winding down. And it’s looking like another banner year for stocks.
So far this year, the S&P 500 has already risen over 20%, and it’s just barely starting to slow down.
In this kind of environment, it’s hard to tell what’s going to happen. Stocks have been defying forecasts ever since the COVID-19 market crash of March 2020. They could continue defying predictions for the foreseeable future. With that said, it’s possible to make some basic forecasts about the broad trajectory of things. In this article, I will share my predictions for the stock market for November 2021.
My first prediction for November is that there will be no stock market corrections. People have been calling for another correction ever since the bear market of 2020. There could be a correction relatively soon — let’s say, next year, or the year after that. But I don’t see one happening in November. While stocks have gotten higher in price, they’ve actually gotten cheaper relative to earnings. Our “overheated” stock market is starting to look less and less overheated.
U.S. stocks to slow down
My second prediction for November is that U.S. stocks will likely slow down. While I’m not forecasting any corrections, I don’t see huge gains for the remainder of the year either. Instead, I think we’re likely to see slow gains or maybe a sideways market.
If you look at U.S. tech stocks like Microsoft, many of them have market caps above $2 trillion. There’s a lot of money pouring into these stocks, and, as a result, their multiples have gotten higher. Yes, the market P/E ratio has come down, but many individual tech stocks are still expensive. So, I’d expect returns to be slower going forward than they were in the past.
Value to outperform tech
As a corollary of the previous point, I’m expecting value to outperform tech over the next month or two.
If you look at value stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD), they have gotten so cheap that it’s almost absurd. TD Bank is trading at a mere 10 times earnings, despite having a 13.1% CAGR earnings growth rate. The bank also has numerous tailwinds, including anticipated rate hikes (a positive for banks), improving Canadian and U.S. economies, and high levels of activity in the mortgage sector. The extreme low multiples at which bank stocks trade seem hard to justify. Their dividend yields remain high, and they’ve got solid growth prospects in the year ahead. So I’d expect them to make big gains in the next few months.
With tech stocks like Shopify, I’d expect the gains to be much more tepid. Just like U.S. tech stocks, Canadian tech stocks are very expensive. Their growth is also decelerating a bit. So, I think they’ll perform more modestly than value stocks in the near future.