And how you, as an investor, can use this to your advantage.
It's September 2021. By now, you've probably heard everyone and their grandmom talk about how the stock market is overvalued and is due for a major crash. Value investors, like Peter Schiff and Warren Buffet, also believe the stock market is immensely overvalued and is overdue for a correction. Suddenly, everyone thinks they're the next Michael Burry.
However, despite the flood of bearish sentiment that has recently entered, there is a possibility that FOMO and investor confidence in the U.S. economy will fuel the stock market to new heights. The bearish sentiments of the stock market have increased significantly in the past week, as the general market had a small-sized pullback, with the $SPY dipping nearly 3% on Monday, and the Dow dropping 800 points. The main reason why the stock market had a small correction was because of the mounting fears of the possibility of Chinese real estate company Evergrande defaulting on their 300 billion dollar loans. This fear over one of China's largest real estate firms defaulting on their loans, spooked international investors, causing a prompt decline in the stock market Monday and Tuesday. However, it seems unlikely that the potential default of Evergrande's loans would have a severe effect on the domestic and international markets.
As everyone knows, the stock market is in a bubble and some bears think it will collapse itself in the near term future. However, that sentiment, along with investors' caution of how dangerously high the market is, has already been priced into the market. If the S&P 500 had a correction tommorww and dipped 10%, many people would buy the dip and dump their money into the S&P 500, as those stocks will have become cheaper, and the quantity demanded would increase as a result. Because of this investor confidence in the economy, these investors are ready to "buy the dip" on these stocks, whenever the market does start to correct itself, those same investors will enter with their money into those stocks, causing the price to go back up.
It's extremely unlikely that there will be a severe market correction or crash leading up to 2022. Investors are confident in the expanding economy, and the stock market is just another reflection of that. Fueled by FOMO and investor confidence, the U.S. stock market may be poised for another bull run soon.