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Canadian and U.S. stocks and global equities are trading near record highs and just had their best November ever. Investors are increasingly optimistic following word that COVID-19 vaccines will be available soon, that Joe Biden won the U.S. presidential election win, and that his administration will provide not just political stability, but will also provide additional stimulus that will keep the stock market on its bullish trend.

But that optimism may be unfounded, with one fund manager suggesting the stock market will crash 40% by April 2021 and won’t rebound for decades.

Could the Stock Market Crash in 2021?

Global stocks have been on a tear since the coronavirus-fuelled sell-off in March. Since then, the S&P 500 has rallied a whopping 152%, the Nasdaq is up 82%, and the Dow Jones Industrial Average has soared 154%. In Canada, the TSX has advanced 55%. The iShares MSCI World ETF (NYSE:URTH), which tracks shares in 49 countries, is up 68% since March and is trading at record levels.

Investors are hoping that momentum will continue into 2021. But that might not happen. According to one fund manager, after December, global stocks will experience a secular decline, one that starts with a 40% correction by April 2021.

The stock market crash won’t result in a quick rebound and slingshot to record levels like we saw in March. The S&P 500, Dow Jones Industrial Average, and NASDAQ won’t reach new highs for decades. There is precedent. After the 1929 stock market crash, it took 24 years for stocks to reach new highs. 

Why all the negativity? The current economic recovery is getting tired, and stocks will soon start to reflect this reality. While 80% of the economy has benefitted from the V-shaped recovery, there’s 15% to 20% of the economy that has been permanently damaged.

And those bankruptcies is what could trigger that stock market crash. Stocks can crash over night, but businesses don’t. Even though COVID-19 crushed the global economy in the second quarter of 2020, it takes nine to 12 months before small businesses start to fail and longer for them to file bankruptcy. By the first quarter though, it is thought that we’re going to see more businesses shuttering their doors, which will trigger a stock market crash.

This will be exacerbated by weak consumer spending as more and more American baby boomers enter retirement. And there are a lot of baby boomers retiring too. From 2011, when the first baby boomers started to retire, until 2030, 10,000 baby boomers will enter retirement each and every day. That’s 70,000 per week and 280,000 per month.

The Millennial generation (those born between 1981 and 1996) will help drive economic growth and consumer spending in 2023, but not until then.

Because of this demographic weakness and massive personal and corporate debt loads, stocks will start to reel in early 2021.

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