Will the stock market crash in 2021?

The stock market has rallied in 2021. Does this mean now is a good time to buy stocks? Or is a crash lurking around the corner? Let’s take a look.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businessman looking at a red arrow crashing through the floor

Image source: Getty Images.

So far, the stock market has performed remarkably well in 2021. Major stock indices, such as the FTSE 100, the FTSE 250 and the All-Share Index, all sit comfortably higher than they were in January. This is despite ongoing uncertainly surrounding Covid-19.

So will this bull run continue for the foreseeable future? Or will the market come crashing to a halt later this year? Let’s take a look.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

[top_pitch]

What is a stock market crash?

A stock market crash generally refers to a sudden or unexpected dip in stock prices.

Crashes in the stock market are often caused by unforeseen events, such as a global war or an economic or health crisis. Crashes can also be caused by too much optimism in the market, excessive leverage and political instability among a host of other factors.

Stock market crashes can slash millions off the global economy. They can therefore be devastating to the wealth of those holding large amounts of equity.

Such crashes often create panic among investors. It’s why many look to sell following a crash, especially if they foresee further falls in the market. These sell-offs can add fuel to the narrative that the market is overvalued, which can weaken prices even further.

Is it a good idea to sell stocks during a crash?

Many experienced investors, taking a long-term view, understand that stock market crashes are part and parcel of investing. It’s why many prefer to hold onto investments during a crash, even if there’s little sign of an immediate recovery. 

It’s also worth knowing that many investors see a stock market crash as an opportunity to purchase at a ‘discounted rate’. Buying stocks immediately after a crash can lead to gains should the market recover quickly. However, this won’t be the case if stocks have further to fall, or if the crash is the beginning of a long-term bear market. 

For this reason, many investors believe trying to time the market is a futile exercise. That’s because to do it successfully, you need to have a perfect entry and exit point and it’s almost impossible to determine where these points are. For more on this, see our article on why ‘sell in May’ is little more than trying to time the market.

[middle_pitch]

When has the stock market crashed before?

Previous crashes that sent shockwaves through global economies include:

  • The 1929 crash that began the Great Depression in the United States
  • ‘Black Monday’ in 1987
  • The Dotcom bubble crash of 2001
  • The 2008 financial crisis
  • The Covid-19 crash in 2020

Will the stock market crash in 2021?

It is not possible to know exactly when the next stock market crash might happen.

While it’s highly likely that the stock market will crash again, as it has done so several times over the past century, knowing when this will be is pretty much impossible to determine.

That said, some analysts say the stock market is in a bubble and overheating. As a result, they feel a crash is imminent.  Others are more optimistic, suggesting that stock indices will continue to offer strong returns, especially when the economic fallout from Covid-19 is a distant memory. 

Whatever your view of the stock market, it’s important to take the right approach when investing. For example, if you take the view that the markets will generally rise in the long term, you will be less likely to panic-sell your stocks in the immediate aftermath of a crash. This limits the possibility of you missing out on any market recovery.

Likewise, if you take the time to understand your tolerance for risk, you can determine how many bonds or equities to include in your portfolio. Whether you expect a crash or not, if prices crashing will mean you won’t be able to meet your financial commitments over the next few years, then you may be more inclined to hold a greater number of bonds. That’s because bonds generally perform better than equities during a crash.

If you’re new to investing, it’s worth reading the basics of investing. Looking to invest? See our list of the top-rated share dealing accounts.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »