The Stock Market Is Not Crashing Anytime Soon
I get questions every week about what to do if there is another crash.
We are seeing COVID-19 cases rise once again and disruptions in the global shipping industry. So, whispers of a correction or crash in 2021 are picking up again.
The stock market always gives you a reason to sell.
But we tend to forget that crashes are not that common.
The 35% drop for the S&P 500 Index in early 2020 was the biggest drawdown — measuring from the maximum peak to the lowest dip over any period of time — since 2008.
We went 12 years without a drop that steep. And now that we’ve had one, everyone is wondering when the next crash will come.
But I don’t expect to see one anytime soon. Heck, it could be another decade.
In fact, I’m bullish on the market right now.
Here’s why I’m expecting the market to continue higher in 2021…
A Record-Setting Earnings Season
It’s all about the guidance.
We talk about earnings season a lot, but one of the key elements is what a company issues for its outlook, or guidance, for the upcoming quarter.
These guidance numbers carry a lot of weight because the executives running the company are in a good position to see how things are shaping up. They’ve crunched the numbers and we are seeing that they are optimistic, and that’s great news.
Companies in the S&P 500, the 500 largest stocks on the market, are issuing positive guidance for revenues and earnings at a record pace.
According to FactSet, we are seeing the highest number of companies giving positive guidance since they began tracking these metrics in 2006.
What does this tell us about these companies?
It tells us that they are bullish on things shaping up as they go through the quarter. They see firsthand the issues the media likes to blow up on the news — like a container ship lodged in the Suez Canal or cases rising once again.
Those are all just headlines.
But hearing it straight from the company itself, that’s when we learn how a business is performing behind the scenes.
Since companies are issuing positive guidance at a record pace, it tells me they are upbeat about the economic rebound we are seeing in America.
And that’s why I’m bullish on the market right now.
If you are expecting a rebound too, there’s one sector you have to pay attention to — the technology sector.
Tech Stocks Will Lead the Way
I’m expecting the technology sector to lead the way higher through 2021. This is the sector leading the positive earnings guidance, but these stocks have not been rewarded in the market.
Tech stocks are underperforming the market over the last few weeks. It’s the only sector to see negative price action since the start of the year, while the S&P 500 was up 4.1% on March 26.
But all that is going on is some profit-taking. The tech sector was the leading sector in the market for 2020. Investors who bet on tech stocks’ rise are happily taking some of their gains off the table.
Now that has paved the way for them to climb higher throughout the rest of the year.
We are seeing these companies issue positive guidance, which tells us the people running the companies are seeing more growth already in 2021.
A great way to benefit is by owning the cutting-edge exchange-traded fund (ETF) with the most innovative companies on the market — the ARK Innovation ETF (NYSE: ARKK).
Its top stock holdings are Tesla, Roku and Square. Some of the biggest companies pushing boundaries and leading the economy are in this ETF.
Tech stocks are going to lead the market higher, and this ETF is a great way to profit.
Chad Shoop, CMT
Editor, Quick Hit Profits
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.