Yesterday i went and talked about 14 of your guys’s favorite stocks to buy going into 2021 and if you missed that video i’ll link that above right now but i’m trying to make this a regular thing or maybe once a week. I make a big video talking about the stocks you guys are watching and give my opinions on it. So if you’d like to hear my opinion on maybe a stock that you’re looking to buy or that you own and you’re not really sure what to do with it, be sure to leave it in the comments section down below so today, i’m going to be doing More of a discussion on the overall stock market compared to just an analysis of individual stocks as much as i love doing that, i think the most exciting part about the overall stock market has been kind of talking about where things are going to go, because in The past year, we’ve had probably the most interesting events that have happened in the stock market since the last recession and it’s been really interesting to be a part of it. So today, i’m going to be talking about three main ideas that have been keeping the stock market up, even though we’ve seen these crazy times in 2020 and now we’re into 2021 and i’m gon na be talking about five potential reasons why the stock market could crash? Am i saying the stock market’s going to crash anytime soon? No, i don’t think so, but the whole idea behind this is i’m looking for potential reasons why the market could have a reason to give back some of its gains that we saw in 2020, and so these are five main ideas that i’ve identified and i’m just Going to talk about some of my thought process of how i’m deciding to invest in 2021, and since this might be a little bit of a longer video just reminder that there are time stamps in the description below if you’d like to bounce around.
Or if you just want to get to the part about reasons why i think the stock market’s going to crash so this week is going to be kind of interesting uh, with tomorrow being uh inauguration day. I found this graphic that shows how the dow jones has performed the day of the inauguration, the next 10 days after and then the next 75 days after and so far, nine out of the past 13 inauguration days have been read. But when you look at the the following 10 days after it, 10 out of 13 of them have been green. So while this isn’t something that i would ever base my trades off of, it is kind of interesting to see the trend of the new president coming in and seeing how the stock market has reacted to it. Also, we have janet yellen who’s, going to be the incoming treasury secretary and she’s the former federal reserve chair. So she is a pretty big deal when it comes to how the stock market’s going to react. She talked about the importance of combating climate change, and that made me feel really good as a marine biologist. Also, someone that is very heavily invested into renewable energies with general, electric ticker, symbol, ge and next air energy, ticker symbol, nee, so i’m, feeling very good about that. But before we get inside, i do have to say that i’m, not a licensed financial advisor, and this is not financial advice.
Anything you hear in this video is just me giving my own opinions on the stock market, and you need to do your own research before making any investment decisions. Also, if you’ve been enjoying these videos really appreciate it. For the like and subscribe button also help my channel out a lot. You guys have been killing it with the support recently, so let’s hop right into it. So one of the main reasons why the stock market continues to go up, even though all of the crazy things we’ve had happen in 2020. The main thing is that the stock market is not the economy. I think this is one of the ideas that hopefully most people have gotten into their heads at this point for the longest time in 2020, i’d have a lot of people that would text me some of my friends that either i grew up with or i went To college with, they would text me and ask: why is the stock market going up even though we’re seeing you know these record number of viruses? The whole thing is that the economy does not dictate the success of the stock market. You do see some things like the jobs report and stuff like that that do have an impact on the overall stock market, but the stock market does not need the economy to do well. It just needs the companies to do well, and so, while we hit record levels for the stock market in 2020, the economy and the health of everyone has not been doing so hot and one of the places that you see that discrepancy the most comes with the Tech stocks in 2020, the big tech stocks did most of the heavy lifting when it comes to the s, p, 500 gains.
And when you look at the top 10 holdings of the s p 500, you see that the top six are all tech stocks and they all did incredibly well in 2020.. This graphic shows the returns of the top 10 s. P 500 stocks compared to the other 490., as you can see, there’s a very large discrepancy and even though that graphic doesn’t include uh the entirety of 2020, it does show that the tech stocks are the ones that are doing most of the heavy lifting, and it Was just a couple of the tech stocks and not the overall market that was doing well and while normal people have been struggling to pay the bills, investors have been aggressively investing and one of the places that i saw. That comes from probably the most interesting article that i’ve seen a while. It was back in december where it’s talked about investors having record low levels of cash. What this means is that, instead of having money sitting on the sideline to take advantage of good opportunities, most investors are heavily bought into the overall stock market and from the numbers i saw that the average investor has less than four percent of their account sitting in Cash – i am not one of those people. I have been keeping my account like 15 to 30 in cash and waiting for opportunities, and while i don’t think that we’re going to be seeing a crash anytime soon, i am waiting for any potential pullbacks twitter’s, a stock i’ve identified as being a potential buying opportunity.
I’M, going to wait until the next earnings report, but with these record highs mostly have been done without stock buybacks, which has been really interesting. I’Ve talked about stock buybacks and the impact that it has on the stock price. With these stocks buying back their shares. What it does is, it reduces the amount of shares available and since the value of the company stays the same, it increases the price and the value of each of the shares. So, even though that we’ve seen stock buybacks decreased by 41 year over year, we’ve still been seeing record highs, which is very interesting. The number two – and i think, probably the most interesting reason why the stock market has been doing well, is that the framing and the expectations with the overall pandemic with the pandemic. We saw huge drops in the market in march, but within a couple weeks, things were on their way up. We saw the lows on march 23rd, and that was like three weeks after we saw the beginning of that stock market crash and that resulted in the shortest bear market in the history of the stock market. So we had the longest bull market and then immediately followed by the shortest bear market. And why is that? I think a lot of it has to do with the ability to change expectations on the fly. Instead of having to kind of wait to see what the damage is, when you compare this last bear market compared to the previous one in the financial crisis, with the financial crisis you don’t have as many indicators, it shows the overall health of the economy and the Stock market and with the pandemic, you could look at the virus cases and see that things were not going to be going well and that companies were going to be negatively impacted by it.
And what this does is that, instead of making earnings per share estimates based off of the you know, maybe last year’s numbers they’re based off of the expectation that companies are not going to be doing as well. Instead, when you compare the year over year, growth for a lot of these companies, a lot of it has shrunk. A lot of these companies have not seen growth in the past year, but since a lot of the stock market and the reaction to earnings reports comes from the expectations set by analysts, since the analysts were able to lower their expectations because of the pandemic, we did Not see these massive drops in these companies – and this graphic, i think, is probably the most interesting thing i’ll talk about in this video and it shows the stock price of the s p 500, compared to the forward uh 12 month. Earnings per share and for pretty much the entirety of the history of the s, p, 500, they’ve kind of gone hand in hand. But with the recent pandemic we saw that the earnings per share numbers have been down, but the stock market has been going up still, and that was because the analysts have been able to lower their expectations because they knew that things were going to get bad. Pretty soon, and so for some of the stay at home stocks like apple, it didn’t really affect them. When i showed this graphic, it shows that they did increase their earnings per share in 2020 compared to 2019.
. But what about the companies that had a really tough 2020 and were like hit the most one of the companies? I think about that’s, a blue chip is disney with most of their uh, their parks closed and a lot of their crew stuff. They did not have a fantastic year when i put up their earnings per share. They had an annual earnings per share of negative 1.60 cents in 2020, compared to positive six dollars and sixty cents in 2019 and eight dollars and 36 cents in 2018.. So you’d expect that since the company had negative earnings per share and they’ve had a really tough time, things would be down right nope. They were up 20 in 2020, so this shows the discrepancy. The analyst expectations and the actual success of the company number three reason why the stock market has continued to stay high has to do with the federal reserve. One of the biggest factors that kept the stock market up was that the federal reserve acted very quickly to lower interest rates to zero. This was like immediately after the stock market started to crash, and what interest rates at xero does means that it is much easier to borrow money, because interest rates are pretty much zero. So there’s not a lot of negatives or downsides to borrowing money and for the normal consumer. It promotes the spending of cash because, if you’ve been checking your savings, account interest rates being pretty close to zero means you’re going to be getting pretty much.
No money for having it sitting in your savings account, and so this results in higher spending which helps balance out the drop in earnings that we’ve seen with the pandemic. In addition, the fed has been buying corporate bonds and looking at the companies that they bought from the most aggressive that they were with was apple, microsoft and hope. Depot and there’s been a lot of discussion on whether or not this was the the best companies to be buying from because, if you look at the balance sheets for a lot of these companies, they didn’t really need that much help. Looking at apple’s cash on hand, they’ve been hoarding cash for the past couple years and they’re currently sitting at 90 billion dollars, and i don’t really think the federal reserve needed to be buying debt from these companies that have very solid balance sheets. So now i want to talk about five reasons why i think the stock market could crash. These vary in time frame of things that could happen relatively soon to things that’ll, maybe take a couple months for them to actually happen, but these are the five things i’m going to be watching going forward. I am going to be comparing a lot of this to what we saw in 2018.. 2018 was a year that we saw a lot of chop towards the end of the year from like july, pretty much through christmas day, and this was so close to ending the bull market uh.
The members. I could find that the stock market fell 19.8 percent. During that time, so it was so close to breaking the bull market, but it didn’t happen that’s when we saw the dow jones dropped 1600 points in one day, which is the single largest drop in history, and then this year in 2020. I guess it was last year the dow dropped 3000 points in a single day, so it all kind of puts things into perspective. So the first thing that i’m looking has to do with tariffs: the government playing hardball with china in 2018. Most of the damage that we saw when the overall stock market came from the trade war with china, and so tariffs hurt companies uh and whenever it’s more difficult to do trade. The stock market’s going to negatively react to that, and so recently we’ve seen trump being a little bit more tough on china, with legislation that has removed three chinese telecommunications stocks and has required more transparency for all the chinese companies to be listed on the new york Stock exchange – and so while i’m not holding my breath for this to happen, because i think the pandemic is going to mitigate some of the plans for potential trade wars. It is something to always watch and tariffs are always a market mover number two has to do with the federal reserve. Raising interest rates in 2018. Part of the market correction came from the decisions of the federal reserve to raise interest rates four times in 2018, and so as interest rates increase it’s not as attractive to spend or borrow money.
And so, as a result, spending is not as high and that negatively impacts companies and with interest rates being at zero i’ve had a lot of people, ask how sustainable is this and are you worried about inflation and so the way that i always come up with My my responses to these type of questions is, i look at the track record and when you look at the history of interest rates in the us, this is not the first time we’ve had interest rates sitting at zero and after the last financial crisis, interest rates Were at zero for, like five plus years so i’m, not worried about uh inflation? You know spiking randomly just because we’ve had interest rates at zero for a year. It is something that eventually, it is going to have to be raised which will negatively impact the stock market, but i don’t think that this is going to happen anytime soon and from what jerome powell’s been saying, it’s likely not going to be happening in 2021. So this is something to keep in mind going forward, but i don’t think it’s going to come into play in 2021. The thing that could happen relatively soon has to do with the fang stocks and earnings, and so, if you’ve been on this channel since this past summer, this has been something i’ve identified for a long time, just being a potential catalyst. I’Ve never said this is going to happen and the stock market’s going to crash i’ve always said this is something to watch, because if it does happen, the market will react pretty violently to it.
I think so, as i talked about these tech stocks fang, which is facebook, amazon, apple, netflix and google, and then you can throw tesla in there, but tesla doesn’t go as well with the fang acronym, so tesla is included in there. But basically, these are all companies that did incredibly well in 2020, and so my expectations towards the end of this past summer was now that we’ve gone. I know we’re almost a year into this pandemic. The expectations are going to be pretty heightened because a lot of these companies have shown that they can do well during the pandemic and eventually we’re going to get to the point where these expectations are too high. And so, if we have a couple of these companies that miss out on expectations, this could be a huge uh, negative catalyst to the overall market. So far, the only company that we’ve really seen kind of miss on expectations has been with netflix. They had some pretty solid numbers when it came to revenue, but their future guidance wasn’t as positive, and the stock fell like five percent after hours. Because of that. But the rest of the overall fang stocks did incredibly well in the last earnings report. But if we get to the point where maybe three of them have negative earnings reports, i think that could be enough of a catalyst to push the market down and since they are so extended compared to their 2019 levels and 2020 was such a good year for Them this pullback could be pretty significant and based off of the incredible weighting of these companies and the s p, 500 and the overall market.
It would be a huge mover for the overall market. I do want to say i will never be betting against amazon when it comes to earnings expectations. There’S been a company that, for the past, like two quarters, i’ve just been like: oh there’s, no way that they can beat these expectations they’re just so high and every quarter they come out and they just release some crazy numbers and i’m just blown away so i’m. Never going to be betting against amazon, but for the rest of the fang stocks with facebook, apple, netflix, google and then tesla. If a couple of these companies miss on earnings, there could be a reason that the market starts to sell off so i’m, going to be watching that the fourth thing that i’m looking at has to do with failure or long delays with the vaccine rollout for the Past couple months, the market has been bolstered by the idea and optimism that the vaccine is going to end the pandemic sooner rather than later and that’s all sounds great. But the vaccine is a very complicated thing and so far we’ve been seeing some problems happening with the rollout, especially in the u.s. I recently saw a tweet from governor kate brown, who is the governor of oregon, saying that there are no reserves for doses and that’s been a problem with the vaccine rollout in places like oregon. Also many of the vaccines because of problems with the way they were going to be given out to people they had to be thrown out because they expired also we’ve been seen in israel, which has the highest percentage of people vaccinated in the world.
They’Ve also been seen record numbers of cases and they’ve been forced to go into an even stricter lockdown. So while the vaccine seems like a great thing and eventually it will be, if we do see some problems with the rollout or maybe the success rate is not as high as previously expected. That could result in a little bit of a sell off, because the market has been pushed up so high at the end of 2020, with the expectations that the vaccine was going to end this pandemic sooner rather than later. And then the last thing that i think is going to be the most interesting going forward has to do with tax policies when trump was in office. One of the things that the gop pushed for was corporate tax cuts and if companies pay less in taxes, they’re going to have higher profits and the expectations that they’re going to be more aggressive with stock buybacks, which does push up the overall stock market. And so those did go through with the last presidency, with trump and as a result, it pushed corporate tax rates down to 21 and looking at the historical range of that number, that is pretty low on the historical range and now with the democrats in power. For the presidency house and senate i’m kind of expecting to see a raise of the corporate tax rate in the next couple years, especially now that we’ve seen the failures of the trickletown economic idea.
Uh. That has really not worked so it’s, not something i’m expecting to see actually go through within the next couple years. But i do think that there is a potential that, within the first hundred days of the biden presidency, they might bring up some idea of raising the corporate tax rate uh. Just because i think it’s something that a lot of the democrats, especially now that we’re seeing uh the discussion of raising the minimum wage to 15. I think that’s going to be something that’s going to have to be on the table for the democrats to kind of go along with the party line, so tax policy is going to be something to watch going forward. I don’t think it’s going to go into effect within the next year, but if biden comes out and says some stuff about wanting to raise that rate, that is going to hurt the overall stock market because corporations are not going to be making as much money which In turn, results in lower stock buybacks and a lower stock market price, so those are going to be the five things that i’m watching to potentially start an overall stock market crash. I don’t think it’s going to be some catastrophic crash like what we saw in march, but i am expecting a correction of around 10 and i think this would be a fantastic buying opportunity and that’s. Why i’ve been keeping like 15 to 20 percent of my portfolio in cash to take advantage of any opportunities that i saw so just a reminder.
The five reasons that i identified number one comes with tariffs or any problems that we have with china. Number two has to do with federal reserve. Raising the interest rates eventually, number three has to do with fang stocks, flopping on earnings, that’s, facebook, amazon, netflix, google plus tesla, but it doesn’t do uh super well with the acronym. Next up is failure or long delays with the vaccine, rollouts and then finally, is the tax policy and the raising of the corporate tax rate. So these are stuff that i’m going to be watching going forward is not something like i’m bringing the alarm bill that the stock market is going to crash anytime soon, but as of right now we are at a very inflated rate. The forward p e ratio is around 30 and the other previous five times that that’s happened or maybe it’s four times the stock market has crashed. So we are at very inflated levels and it’s going to be something to watch going forward. So thanks for watching, i really enjoy doing these types of videos talking about the overall stock market and so i’m, going to be hoping to do more topics like this in the future.