It's hard to imagine a more dramatic roller coaster for investors compared to 2020. The Covid-19 saw felt like a major recession and the Dot Com bubble burst and narrowed to 12 months. This experience should provide a lesson for investors in 2021:
Predicting the future is a risky game.
"The S&P 500 is down more than 33% in March, we just went through a contested presidential election and we are still in the midst of a worsening global pandemic. However, the S&P 500 has hit an all-time high. No one can predict That, no one knows what he will accomplish in 2021, says Kansas-based financial planner Desmond Henry. "If 2020 has proven anything, it means the market is impossible to predict, so I'm not trying."
If anything, 2020 should teach investors that established principles, such as investing long-term with a low-cost, diversified portfolio and only checking your investment balance occasionally, are the best advice.
"I advise my clients not to get caught up in the latest hot stocks, sectors or investment trends," says Henry.
If you panic when the market is down in March and sell your investment, you will lose a full rally, including 60% growth from the March low. That's why Henry recommends that clients "maintain a well-diversified portfolio to satisfy what the markets bring next rather than trying to predict what will happen next."
However, it is impossible to ignore the trends that may affect investors in 2021. Here are the top ten trends that may affect the stock market and your investments in the new year.
1.The Biden effect
January will be dominated by news of the next Biden administration. Much has been written about President-elect Joe Biden's plan to raise taxes on the rich and its potential impact on stocks. However, the market reacted positively to Biden's apparent victory on election night and continued to rise as election results became clearer in the following days.
While Wall Street initially appeared to be expecting a blue wave, recent market performance also appears to show that it likes a stagnation, meaning that markets are likely to respond positively regardless of the outcome of the US tour of Georgia. . Senate roots.
2.The beginning of the end of Covid-19
The approval and gradual distribution of Covid-19 vaccines will be a major concern in early and mid-2021. Will the vaccines work as advertised? Will it be distributed quickly across the country and around the world?
There will be unavoidable tornadoes. But as better weather returns to the United States, normalcy could gradually begin to return. At the same time, the markets will monitor Congress for additional incentives that provide a lifeline to small businesses and consumers until vaccines actually begin to slow the spread of the virus.
How quickly the epidemic fades will have massive macroeconomic shocks, affecting all investment sectors. Some will be more obvious than others, so each one deserves its own discussion.
3.Covid-19 vaccine to increase the stock of medicines
If the pharmaceutical industry manages to control Covid-19 during 2021, it will be a victory for science. Public companies that participate in this effort will be rewarded handsomely.
Some winners will be clear, like vaccine makers like Pfizer (PFE) or Moderna (MRNA), but companies working on curative drugs like Regeneron (REGN) will also benefit.
There will also be less clear winners. Just one example: the distribution of a vaccine will require enormous logistical efforts. Some vaccines require transportation well below freezing, for example, so companies selling the refrigeration technology will benefit.
4.The cumulative demand for travel stocks
Many other sectors are poised to take a leap if the world begins to return to normal in 2021. And pent-up demand for travel could lead to a gold rush for long-approved airlines, hotels and even cruise lines.
And all of this increased economic activity will do wonders for the worst hit resort cities across the country and around the world as well. How Much Does Seth Carpenter, President of the United States, Cost? The UBS economist predicted in November that early vaccine successes could mean almost zero cases of Covid in the United States. Before the summer, which would add between 1 and 1.25% of US GDP.
5.Hunger for restaurant reservations
Informal fast food chains are poised to take advantage of a possible return to normalcy. Many have been lame with orders, but on the day that Pfizer announced that its vaccine was 90% effective in its Phase 3 trials, there was a pervasive group of chain restaurants, representing almost every kitchen.
To serve just one sample dish: Darden (Olive Garden and Longhorn Steakhouse) (DRI), Ruth's Chris Hospitality Group (RUTH), Cracker Barrel (CBRL), Cheesecake Factory (CAKE), Denny's (DENN) and Dave & Buster's (PLAY ) and everyone has seen Earn multiply percent that day.
6.Be careful working from home inventory
On the other hand, many companies that made windfall profits in 2020 could be at risk due to the prospect of a return to normalcy after Covid-19. We also tested this through the advanced vaccine trial advertised by Pfizer. Zoom-Work-from-home darling Zoom (ZM) lost almost 20% at a time
Food delivery services have declined dramatically, as have similar inventories.
Zoom isn't going anywhere, nor does the crowd work from home. But November of that day should be a warning that growth in this sector may enter a new phase.
7.Be careful with rotations
The new investment stages are normal. In the stock market, they are called "turnover." The money continues after the gains in certain sectors until the rally runs out, then the money flows to other sectors.
It's not uncommon for an increase in investment in high-risk / profitable technology to follow a flood of boring utility stocks. Investors are likely to move to different sectors in 2021.
Analysts have long anticipated a slowdown in tech stocks, which has been an excellent year in 2020, so much so that the B word for bubble was often cited in market coverage.
The long bull market in tech stocks must finally come to an end. Factors that could play a role in 2021 include the possibility of complicated antitrust litigation against Google (GOOG) and other tech giants. It's unclear how the Biden administration will handle the Trump administration's lawsuit against Google. But there seems to be little doubt that state prosecutors will continue to file lawsuits against the tech giants.
9.FAANG shares are long in the teeth
The technological slowdown and billing trends lead us to FAANG's stock and its enormous impact on the market in recent years. FAANG is a Wall Street alias of Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (now called Alphabet), although Microsoft (MSFT) is sometimes replaced by Netflix to create FAAMG. .
Whatever it's called, this basket of tech giants represents roughly 20% of the value of the S&P 500. Most importantly, during 2020 it accounted for a large portion of the observed gains on the S&P 500.
At the end of November, for example, the S&P 500 had risen about 13% for the year. But Microsoft and Google are up 36% each, Facebook 40%, Netflix 55%, Apple 67% and Amazon 70%.
It's a good bet that this story could change in 2021. What remains is if the FAANG names can continue to rise like rockets. If they don't, will investors seek to funnel their money into other tech stocks or other sectors? Or will FAANG's stagnant growth affect the broader market?
News in any direction can have a major impact on your portfolio.
10.Don't overreact to the news, but be prepared for the unexpected
Predictions are difficult, but it is easy to predict something unexpected will happen in 2021. So the most important advice is to avoid the temptation to focus too much on the short term.
Certified financial planner Bobbi Rebell, host of the Financial Grownup podcast, says, "I believe in focusing on your goals and coming back from there for a reaction." "So there is no change that is driven by external factors" such as events you may hear about on the news.
The new year also provides investors with an opportunity to assess how they have coped with unexpected events over the past twelve months and consider making changes, she says.
"Do you have enough liquid savings for things like ... a pandemic?" Rebell says. If not, it may be time to pool your emergency savings. And if you're feeling overwhelmed or panicky while selling over the past year, you may want to adjust your investment strategies to include more fixed income investments in the new year.
In a world where uncertainty is more of an advantage than a mistake, it is important to be prepared for high and low market prices, even within the same year. While something as dramatic as a pandemic cannot be expected in 2021, Henry hopes investors will be ready for another train ride next year.
"One of the facts that I think investors should be more comfortable with is the increase in volatility in their portfolios. While 2020 is an exception in terms of ups and downs, volatility is something that all investors should get used to." , He says.
The best way for most investors to deal with volatility is a diversified portfolio of exchange-traded funds (ETFs) that are designed according to your target timeline and risk tolerance.
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