Experts are sure that the US stock market will face a sharp drop in the next 5 months. They support their forecasts by the history of the American stock markets.
Traditionally, stock exchanges are trading lower from May to October. In 2021, the year when the pandemic is still raging on, this situation may become even worse. According to Wall Street experts, since 1950, the S&P 500 Index has declined by an average of 1.7%. At the same time, in the period from May to October, the indicator's performance was 5.48 percentage points less than in the period from November to April.
The above mentioned data refers to average estimates over the past decades. Yet, 2021 could be a prime example of a more pronounced trend. For example, from November 1, 2020 to April 30, the current S&P 500 Index increased by 28%, while earlier it grew by an average of only 6.8% for the same period. As a rule, in the period from May 1 to October 31, the index enters the phase of flat trading or decreases by 5% –10%.
Experts also call the US Federal Reserve a possible cause of the expected fall in shares. Analysts explain that when the Fed makes noticeable changes to its monetary policy to support the economy and financial markets, it heats up the market so much that over time it becomes incredibly vulnerable to sharp fluctuations. For example, when the Federal Reserve announced it was lowering interest rates in late 2018, the S&P 500 gained 40%, but later in 2020 it entered a bear market driven by the COVID-19 pandemic.
Obviously, the market decline three years ago was caused by the health crisis rather than by the Fed's rate hike. Yet, it is hard to deny that the bubble on the US stock exchanges was stimulated by the support measures provided by the Federal Reserve. Against this backdrop, S&P 500 soared by 87% from the low reached last year.
At the moment, market participants expect the Fed to cut its bond buying program, which is one of the regulator's tools to keep interest rates low and to avoid deflation during difficult times. Today, there is another surge in economic demand and inflation. Such a decision by the Federal Reserve could lead to a decrease in the value of bonds and an increase in their yields
To sum up, the last day of spring and the coming summer of 2021 are unlikely to be the time of spectacular growth in the stock market. In addition, some serious reasons for increased sell-off may appear soon.