Please ensure Javascript is enabled for purposes of website accessibility

This Threat Could Mean Disaster for the Bull Market in Stocks

By Dan Caplinger – Jun 9, 2021 at 6:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A late-day drop showed the power of fear in the economy.

Wednesday brought another bout of volatility to the stock market. Market participants were initially upbeat, but throughout the day, investors seemed to lose their optimism about potential future gains. By the end of the day, the Dow Jones Industrial Average (^DJI -1.71%), S&P 500 (^GSPC -1.51%), and Nasdaq Composite (^IXIC -1.51%) were all down, with the S&P 500 having pulled back from what might have been a record closing.


Percentage Change

Point Change

Dow Jones Industrials



S&P 500



Nasdaq Composite



Data source: Yahoo! Finance.

Nearly everyone had seemed to take for granted that after the huge disruptions to the global economy throughout 2020 due to the COVID-19 pandemic, 2021 would inevitably be a year of sharp recovery. It's certainly the case that there's plenty of pent-up demand in certain areas of the economy that were shut down for much of the past year. Yet a new threat that few people had accounted for appears to have reared up, and it's making economists start to question whether the recovery will be as strong as everyone had assumed it would be. That, in turn, could bring the bull market to  a crashing halt.

Fast-food worker bagging up an order.

Image source: Getty Images.

Are tight labor markets hamstringing businesses?

Employment trends are one of the most important factors that determine the course of the economy. When many people are unemployed, as occurred early in the pandemic, it can spell financial disaster. That was the primary motivation for the massive government assistance packages that came in multiple rounds over the past year. As businesses laid more people off due to shutdowns, the massive threat to the economy warranted a proportionate response.

Now, the economy is generating new jobs to put people back to work. Unemployment rates have fallen substantially. Yet the new threat facing businesses is finding enough people to hire as economic opportunities expand.

Many workers have decided to leave their jobs, taking advantage of a tight labor market to find better positions elsewhere. Others still aren't in a position to return to work because of child care or health and safety concerns. Even decisions from some states to bring extra unemployment benefits to an end haven't yet resulted in a substantial uptick in people returning to work.

Businesses at risk

The impact of tight labor markets is stronger on some industries than on others. Those areas that have traditionally paid lower wages are struggling the most in many ways. On Wednesday, fast-casual restaurant chain Chipotle Mexican Grill (CMG -2.63%) said that it would boost the prices on its menu, in part to provide more money to boost employee wages for workers in Chipotle's restaurant locations. That includes a boost to average hourly wages to $15 by the end of this month, as well as referral bonuses for those bringing new workers on board.

The move follows similar actions by other players in fast food. McDonald's (MCD -1.56%) said last month that it would boost hourly pay by roughly 10% on average for tens of thousands of employees. Fast-casual specialist Darden Restaurants (DRI -2.32%) has also hiked its wages.

Nor is the labor shortage limited to restaurant work. Other companies outside of that industry have also boosted wages in an effort to attract new workers and retain existing ones.

Higher wages for lower-paid workers can have a positive impact on the economy. But if workers aren't taking jobs in some key areas despite wage increases, then labor shortages can lead to shutdowns, which in turn could make the economic recovery fall short of hopes. Given how high investor expectations have been, that could prove problematic for the bull market to continue to run.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,502.76 (-2.63%) $-40.59
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,585.62 (-1.51%) $-54.85
McDonald's Corporation Stock Quote
McDonald's Corporation
$230.74 (-1.56%) $-3.66
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$10,575.62 (-1.51%) $-161.89
Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
$126.32 (-2.32%) $-3.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.