The market is currently expensive. The Dow Jones, S&P500, and the Nasdaq are at all-time highs, not to mention how costly big tech and large-cap stocks are at the moment. While I’m not sure there’ll be a market crash any time soon, I’m eagerly looking out for negative stock market catalysts that will provide potential ‘buy the dip’ opportunities. Remember, these catalysts are not guaranteed, but it’s essential to be prepared just in case they do occur. 


5 stock market warnings
Photo by Scott Graham on Unsplash

1. Tax-Loss Harvesting 

The year is finally coming to an end, and investors are looking for ways to minimize their 2021 taxes.

Tax-loss harvesting is a tax reduction strategy that allows you to sell your losing stocks and claim a tax deduction that will offset the taxes you owe on the stocks you’ve sold at a profit. 

But how does this affect the stock market?

Well, any stocks that have performed poorly this year are now at risk of falling even further. This is because investors are looking to sell their losing stocks for tax advantages. The more institutions and retailers sell out of these stocks, the lower the stock prices fall.

We’re already seeing this phenomenon with some small and mid-cap stocks, many of which have reached 52-week lows. Examples of such stocks include Smile Direct Club, Teladoc, Beyond Meat, Tattooed Chef, Lemonade, Robinhood, and many more. 

We’re still weeks away from the end of the year, and tax-loss harvesting is likely to continue, providing great buying opportunities! Happy Shopping!

Read More: Inflation is rising! Here’s how you can profit from inflation

2. Raising the debt ceiling by Congress(and other bills)

Congress has its final session of the year on December 10th, yet they need to get the following things done: 

  1. First, Congress needs to, once again, raise the debt ceiling. 
  2. Secondly, they need to pass the ‘Build Back Better’ plan. The plan is yet another form of stimulus and could have either positive or negative market catalysts for the market. 
  3. Finally, we expect them to pass a budget, which is critical for the ‘Build Better Plan.’

In addition to being critical, the above bills are a lot to get done within ten days. Raising the debt ceiling is particularly vital because if it’s not done on time, the US runs the risk of defaulting on its debt. Still, we all know that Congress will wait until the last minute or, worse still, extend their stay at Capitol Hill. 

The market is likely to react to these uncertainties, creating an opportunity to buy stocks at a lower price. But, ultimately, Congress will clear its backlog of bills, and the fear will only be short-lived. 

Read More: Terrible Financial Advice Going Viral To Avoid.

3. Jobs report

November jobs report is coming out on December 3rd. While the labor market in the service and entertainment sectors is likely to remain below pre-pandemic figures, we expect to see strong job growth and a drop in the unemployment rate. 

Two things will be of particular interest to investors: the unemployment rate and the hourly wage

  1. A significant decrease in the unemployment rate will signal to the Federal Reserve that the US is approaching maximum employment(one of the Fed’s mandates) and that they need to end the taper sooner and start raising interest rates. 
  2. A notable increase in hourly wages will start to raise concerns about a potential wage-price spiral or even hyperinflation. A wage spiral refers to a cycle in which wages rise so much(due to labor shortage or higher labor demand) that they increase business input costs forcing businesses to raise prices, thus causing inflation. Inflation then causes workers to demand even higher wages to keep up with increased living costs. The never-ending cycle is dangerous as it can lead to hyperinflation. 

So lookout for an adverse market reaction if any of the above happens. 

wage-price spiral
wage-price spiral

4. Consumer Price Index (CPI) Report

The CPI (which measures the average monthly change in the price of goods, and hence an indicator of inflation) report for November will be released on December 10th and is expected to come in at 0.7% month over month. Compared to the previous month’s (October) index that came in at 0.9%, November’s figure is anticipated to be lower, indicating a slowing down of inflation. 

5. The Federal Reserve Board Meeting

The Federal Reserve Board members will have their monthly meeting on December 14th and 15th. The members are expected to discuss about the current rate of tapering. Jerome Powell, the chairman of the Federal Reserve, has indicated that they might decide to end the taper(stop printing money) sooner and begin to raise interest rates earlier than expected. 

Rising interest rates tend to increase fear in the market and could cause a sell-off of some high-valuation stocks providing an opportunity to buy. Beware, though, that the sell-off of highly valued stocks could continue into the new year as long as the fear of rising interest rates remains.

Conclusion

I like market dips and will be watching out for the above catalysts for buying opportunities.

How about you? Will you be buying the dip?

Read More: 5 things to do when the Stock Market Crashes.



Disclaimer: None of this is meant to be construed as financial advice, it’s for educational purposes only. Links may include affiliate referrals and I may receive compensation from partnering websites. The content is accurate as of the posting date but may not be accurate in the future.



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