How to Invest in 2021: Stock Market Perspectives and Trends in Pandemics
We will remember 2020 as the year that turned the whole world upside down. When the globe plunged into the first wave of the pandemic in March of this year, stock markets collapsed. Compared to early 2020, the S&P 500 index lost 30% of its price while the WTI price fell to negative levels. The Dow Jones Index fell 10%, the deepest dip since Black Monday in 1987. Russia’s and Saudi Arabia’s controversy over the oil issue coincided with the spread of the coronavirus and the subsequent decline in share prices. Together, these factors resulted in the most severe economic pressures in history.
In order to support the economies of developing countries, it was decided to artificially increase market liquidity through quantitative easing. This means the printing press started printing money at the same pace as the coronavirus spread. The total amount of banknotes issued in 2020 is USD 9 trillion, which is 25% of the total USD money supply. Aside from compensating for a loss of trust, large corporations, and healthcare spending, that money was given directly to US citizens. As a result, the markets gradually recovered.
In 2021 we have to solve the problems of 2020. Over the past year, we have changed the way investors approach money and made them revise their investment tactics. The steep movements in wealth over the past 5 months made market participants think twice about where and for how long they should invest their capital. Now, while the pandemic continues, we need to review the prospects and actual market trends. So where should we invest money if the coronavirus crisis is still raging?
What’s going on in the stock market?
Investors should be twice as cautious in the current market environment. The first threat is overvalued stocks, which have grown excessively over the past year. The US stock market “boasts” of the biggest bubbles – you will recall that shares in Zoom and Tesla, for example, shot up thousands of percent during the pandemic. Elon Musk even openly admitted on Twitter that his company’s stock cost no more than $ 700, causing some investors to feel offended and suing the businessman.
Today, Zoom and Tesla stocks are already correcting, but there are more bubbles. In early 2021, the shares of companies specializing in solar energy grew noticeably. In early January, SunPower’s shares rose 20%; At the end of the month they grew from $ 24 to $ 54. Stocks traded this high through March and then revised heavily. On March 30, 2021, they cost $ 29. Such impressive growth and decline are reliable indicators of an overvalued asset.
Lessons from a hamster riot by WallStreetBets
The second specialty of the modern stock market is the easier access to trading in securities for private investors. This was provided by platforms like Robinhood, already known from history with WallStreetBets. In January 2021, the members of this union on the Reddit platform began massively buying the shares of a near bankrupt network of game stores GameStop, which large hedge funds (such as Citron Research, which anticipated the bankruptcy of GameStop and were on the verge of causing damage) damaged parts). As a result, the company’s shares grew from $ 19 each to $ 500 due to the entire property.
Some will say: so what? A group of enthusiasts decided to save a dying shop from utter havoc … It would be true if the Reddit hamsters hadn’t used their tactic on silver in early February, causing an ounce of metal to grow 12% and $ 30 reached. No hedge fund is safe from the intervention of “Reddit” private investors, and who knows which stocks they will consider undervalued next time around? The events provoked by the WSB hamsters showed that market manipulation is now available not only to large players but also to ordinary investors. This should make you twice as careful when trading on the stock exchange, especially if you are involved in such “pump-and-dump” things. In the short term this may be a good profit, but as a holistic trading strategy it is useless: the risk of being left behind with a “dummy” bought at a cosmic price is too high.
How do I invest in 2021?
We don’t yet know when the coronavirus chaos will end. Things are now similar to the 2017 crypto situation where people went crazy about certain assets that grew 1000% in a week and then declined just as quickly. There is little doubt that the show will continue – 46th President Joe Biden is already printing $ 1.9 trillion more to stimulate the economy.
The main task for any investor in the market is to find stocks that have real reasons for growth, not just artificial stimuli. Experts say the peak of the crisis is yet to come, and most likely we will see a really dramatic slump that will not be as quick and easy to overcome as last year.
You should definitely invest in stocks that haven’t fallen much during the pandemic and have some margin of safety to overcome the following issues. First and foremost, this is food retailing: people will always need food and have a habit of keeping it (we all know the story of toilet paper). Those who pursue the buy & hold strategy can turn to the pharmaceutical sphere: companies in this industry are always striving to make money with the complicated situation with the virus and are precisely looking for new types of it.
IT companies, on the other hand, can protect you from losses: During the pandemic, they not only avoided break-ins, they also made decisions. Their stocks are expensive, but it is evident that the future will be digital and “from home”, which is what the development of electronic technologies means. The shares of IT companies will continue to grow; Here you have to know how to find promising startups.
We live in difficult but interesting times. The events of 2020, of course, have significantly changed all of society, including the economy. In April 2021, a year after the pandemic began, the world still fails to abolish lockdowns, often absurd “anti-coronavirus” measures and general panic.
Investors should be very careful with everything that happens around them. The first thing to decide about is your risk tolerance. On this basis you choose your strategy and form your portfolio. Be careful, don’t let inflated stocks seduce you, and interpret events correctly. Projecting them on the stock market will give you correct conclusions that will help you invest with minimal risk and maximum effectiveness. Always remember that you are the person in charge of your investments, even if you let someone else manage them.