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How to invest in 2021: perspectives and stock market trends in a pandemic

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How to invest in 2021: perspectives and stock market trends in a pandemic

We will remember 2020 as a year that turned the whole world upside down. When the globe plunged into the first wave of the pandemic in March of that year, the stock markets collapsed. Compared to the beginning of 2020, the S&P 500 index lost 30% of its price, while the WTI price fell to negative values. The Dow Jones index fell 10%, the deepest decline since Black Monday in 1987. Russia and Saudi Arabia’s argument over the oil problem coincided with the spread of the coronavirus and the consequent fall in stock prices. These factors together have resulted in the most serious economic stresses in history.

To support the economies of developing countries, a decision was made to artificially increase liquidity in the market using Quantitative Easing, meaning that the printing press began printing money at the same rate that coronavirus was spreading. The total amount of banknotes issued in 2020 is $ 9 trillion, which is 25% of the total money supply of USD. In addition to compensating for the losses of trusts, large companies, and health care costs, the money was given directly to U.S. citizens. As a result, markets began to gradually recover.

In 2021, we will have to solve the problems of 2020. Last year, it changed investors ’approach to money and forced them to revise their investment tactics. Sudden property movements in the last 5 months have forced market players to think twice about where to put capital and for how long. Now, with the ongoing pandemic, we need to check out the prospects and real market trends. So where should we invest money with the still raging coronavirus crisis?

What’s going on in the stock market?

Investors should be twice as cautious in the stock market in the current circumstances. The first danger is overvalued stocks that rose excessively last year. The U.S. stock market “boasts” the biggest bubbles – you remember the stakes of, say, Zoom or Tesla that rocketed the sky thousands of percent during a pandemic. Elon Musk even openly admitted on Twitter that his company’s shares didn’t cost more than $ 700, after which some investors felt offended and sued the entrepreneur.

Today, shares of Zoom and Tesla are already correcting, but there are more bubbles. For example, in early 2021, the shares of companies specializing in solar energy began to grow noticeably. At the very beginning of January, SunPower shares rose 20%; by the end of the month they had risen from $ 24 to $ 54. The stock was trading so high until March and then corrected steeply. March 30 ^ ^ 2021 costs $ 29. Such impressive growth and an equally impressive decline are reliable signs of overvalued assets.

Lessons from the hamster rebellion by WallStreetBets

Another feature of the modern stock market is a simpler approach start trading securities for private investors. This was provided by such platforms as Robinhood which has already become famous from the story with WallStreetBets. In January 2021, members of this union on the Reddit platform began massively buying shares of the nearly bankrupt GameStop gaming store network, damaging large hedge funds (like Citron Research that counted on GameStop’s bankruptcy and briefly played on its shares). As a result, the entire plot increased the company’s stakes from $ 19 to $ 500.

Some will say: so what? A group of enthusiasts decided to save the dying trade from complete devastation … It would be true that in early February, Reddit hamsters did not apply tactics to silver which resulted in an ounce of metal that rose 12% to $ 30. No hedge fund is safe from the intervention of private investors “from Reddit”, and who knows which shares will be considered undervalued next time? Events triggered by WSB hamsters have shown that market manipulations are now available not only to big players but also to ordinary investors. This should make you doubly cautious about trading the stock market, especially if you are involved in such “pump and throw” things. In the short term, this could make a good profit, but as a holistic trading strategy it is useless: the risk of being left with a “doll” bought at a cosmic price is too high.

How to invest in 2021?

We still don’t know when the chaos of the coronavirus will end. Things are now similar to the crypto situation of 2017, where people went crazy for certain assets that grew by 1000% during the week and then declined equally quickly. There is little doubt that the show will continue – 46 ^^^ President Joe Biden is already printing $ 1.9 trillion more to pour into the economy.

The main task of every investor in the market is to find stocks that have real reasons to grow, not just artificial stimuli. Experts say that the peak of the crisis is yet to come, and we will most likely witness a really dramatic decline, from which it is not as quick and easy to get out as last year.

You definitely should invest in stocks who did not fall much during the pandemic and have a certain safety margin to overcome the problems that follow. First and foremost, this is food retail: people will always need food and have a habit of storing it (we all know the story with toilet paper). Those who follow the Buy & Hold strategy can turn to the pharmaceutical sphere: companies in this branch are always trying to make money on the complex situation with the virus and are carefully looking for new species.

IT companies, in turn, can insure you against losses: during a pandemic, they not only avoided falls but also ruled. Their shares are expensive, but it is obvious that the future will be digital and “from home”, which means the development of electronic technologies. Shares of IT companies will continue to grow; here you need to know how to find promising startups.

Sum up

We live in difficult but interesting times. The events of 2020 have significantly changed the whole of society, including the economy, of course. In April 2021, a year after the pandemic began, the world still fails to lift blockades, often absurd “anti-coronavirus” measures, and overall panic.

Investors should be super careful in everything that happens around them. The first thing you need to decide is your risk tolerance. Based on this, you will choose your strategy and shape your portfolio. Be prudent, don’t tempt us with inflated stocks and interpret events correctly. By designing them on the stock market, you will come to the right conclusions to help you invest with minimal risk and maximum efficiency. Always keep in mind that you are the person responsible for your investments even when you allow someone to manage them.

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