In less than a week, we’ll officially be ringing in a new year. However, Wall Street might be sad to see 2021 come to a close. The benchmark S&P 500 (SNPINDEX:^GSPC) has more than doubled up (+24%) its average annual total return of 11% (including dividends) over the past four decades, and it hasn’t undergone a steeper correction than 5%. It’s been a true running of the bulls.

But as we turn the page on 2021, it’s quite possible Wall Street could lose its luster. Below are seven reasons the stock market could crash in January.

Image source: Getty Images.

1. Omicron supply chain issues (domestic and abroad)

The most obvious obstacle for the S&P 500 is the ongoing spread of coronavirus variants, of which omicron is now the most predominant in the United States. The issue is that there’s no unified global approach as to how best to curtail omicron. Whereas some countries are now mandating vaccines, others are imposing few restrictions, if any.

With a wide variance of mitigation measures being deployed, the single greatest risk to Wall Street is continued or brand-new supply chain issues. From tech and consumer goods to industrial companies, most sectors are at risk of operating shortfalls if global logistics continue to be tied into knots by the pandemic.

Image source: Getty Images.

2. QE winding down

Another fairly obvious high-risk factor for Wall Street is the Federal Reserve going on the offensive against inflation. As a reminder, the Consumer Price Index for all Urban Consumers (CPI-U) rose 6.8% in November, which marked a 39-year high for inflation.

Earlier this month, Federal Reserve Chairman Jerome Powell announced that the nation’s central bank would expedite the winding down of its quantitative easing (QE) program. QE is the umbrella program responsible for buying long-term Treasury bonds (buying T-bonds pushes up their price and weighs down long-term yields) and mortgage-backed securities.

Reduced bond buying should equate to higher borrowing rates, which in turn can slow the growth potential of previously fast-paced stocks.

Image source: Getty Images.

3. Margin calls

Wall Street should also be deeply concerned about rapidly rising levels of margin debt, which is the amount of money that’s been borrowed by institutions or investors with interest to purchase or short-sell securities.

Over time, it’s perfectly normal for the nominal amount of outstanding margin debt to climb. But since the March 2020 low, the amount of outstanding margin debt has come close to doubling, and now sits at nearly $919 billion, according to November data from the …….

Source: https://www.fool.com/investing/2021/12/25/7-reasons-the-stock-market-could-crash-in-january/