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Will stock markets crash before 2021 ends?

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Until yesterday, asking whether stocks markets would crash before year-end might have sounded strange. Stock markets have been strong in November. The FTSE 100 index even bounced back to pre-pandemic levels after struggling for a few months. But early trading today suggested investors (including me) are beginning to wonder what comes next. 

Why are the stock markets weakening?

The FTSE 100 index is at 7,140 as I write, down by almost 3% from yesterday’s close. Why is this happening? It seems to be due to the fact that a new virus variant has been found, which could be highly resistant to vaccines. Its capacity to spread the infection is also higher than for other variants. In response, the UK has restricted travel to and from six African countries. 

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In any case, the US is expected to see a spike in Covid-19 infections because of travel around Thanksgiving. The US is the largest country economy, and for that reason, any health crises there are likely to have a disproportionately high impact on the rest of the world. 

The biggest fallers

It is little wonder then, that the biggest FTSE 100 fallers in today’s trading are those most impacted by Covid-19. These are the two aviation stocks International Consolidated Airlines Group and Rolls-Royce,  down by 11% and 8%, respectively, as I write. A similar trend is visible for the FTSE 250 index, which is down by 2.2%. The biggest index fallers in this case are Carnival Corporation and easyJet, which are down by 14% and 11%, respectively, so far. I had also written about the Cineworld share price in this context yesterday, which is down by another 6% today. 

Is a stock market crash likely?

Going by this, I reckon that a stock market crash could happen before 2021 ends if there is more bad news on the variant. Specifically, if speculation of yet another lockdown becomes more widespread, I would brace for another crash. And it could be even worse than the last one, in my view. This is because many companies are already pretty damaged from the pandemic so far. It would be an even bigger struggle for them now to sit through another pandemic with their shutters down. 

But this, too, is speculation. It is entirely possible that the new variant is controlled quite quickly and stock markets are back to being bullish soon. And even if it does cause some trouble, there is a possibility that it will be short-lived now that the world is better prepared to deal with the pandemic. Many companies have also adapted to doing business online, like grocers and non-essential retailers. 

My takeaway

I am not ruling out the possibility of a stock market crash before 2021 ends. At the same time, a market crash does not even need to be the end of the world, or it might not even happen. If it does, it would be a buying opportunity for me. March 2020’s stock market crash has taught me that it is a great time to buy stocks at a discount. And that time might just be starting soon. 

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Manika Premsingh owns shares of Cineworld Group, easyJet and International Consolidated Airlines Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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