The last couple of years have been some of the wildest and most unpredictable seen by investors in recent history. After a mass sell-off in early 2020, many of the world’s stock markets have since gone on to enjoy impressive rallies that more than made up for the declines in Q1 and Q2. Let’s see what opportunities are available for investors in late 2021.
As trading levels have returned to normal in the regular economy in most countries in 2021, we’ve seen commodity prices skyrocket and inflation has accelerated to a rate that is alarming some experts.
With so much going on, it can be difficult for investors to know what they should be doing.
Wait for a Correction?
The stock market rally seen over the last 12 months is part of a much longer trend. The USA’s S&P 500 index has enjoyed one of the largest and longest bull runs in modern history. Over the last decade, it has roughly quadrupled in price, the fastest rate of growth ever seen.
As in physics, conventional wisdom in investing agrees that what goes up, must come down. In recent history, we’ve seen this several times. The dot-com boom in the early 2000s saw the stock market bubble burst when the market overheated, and the same happened in 2008 and 2009 when the housing market corrected.
Many commentators are, therefore, predicting another major stock market sell-off. However, you can see doomsayers have been saying the same thing for several years. Just search “market crash coming” and add any year you like and you’ll see articles and videos claiming a correction was due at any moment.
Of course, we will face a crash at some point. The infamous words of “no more boom and bust” exclaimed by Gordon Brown and other economists in the early 2000s certainly aren’t being repeated today. However, the question is not “if” but “when”.
Some people are suggesting waiting for a crash before investing (or investing more). Others are even advocating selling to wait for the correction before jumping back in. Both scenarios involve timing the market, something that has proven almost impossible to just about every investor ever to have lived.
For value investors, it may be that you can’t currently see any companies that are worth buying; for speculators, you don’t need to wait for a correction because you can always use derivatives to make bets on downturns; and for passive investors, there’s no need to wait as those that advocate this strategy say it doesn’t matter when you invest as dollar-cost-averaging will always offset any buys during peaks.
Look for Good Companies?
There are always good companies on the market, you just have to look for them. Over the last 12 months, some businesses have fared better than others. Those that have offered delivery services or are based mostly or entirely online have enjoyed explosive growth in both revenue and share prices.
One of these has been the gaming industry. It had already been enjoying record sales and continued growth for several years beforehand but saw this explode in 2020 as more people than ever began playing games. Companies like EA, Take-Two, and Activision are currently trading between 50 and 100% higher than they were in early 2020, though most have plateaued in the last few months.
iGaming, which includes companies that offer casino games, sports betting, and other forms of wagering over the internet, also enjoyed a spike in business during 2020. However, these companies have generally received more positive sentiment from traders this year, thanks in part to most companies reporting record profits in their latest annual reports and quarterly updates.
The iGaming market has more scope for growth than some other forms of gaming thanks to the rapidly expanding US market. While online wagering has been possible in most parts of Europe for around two decades, the United States didn’t formally legalize online sports betting until mid-2018.
Now, as more states are passing legislation to allow this form of entertainment on their territory, companies are rushing to build market share. This is why many brands in New Jersey are offering free bets to encourage users to sign up to their site over a competitor.
With the US iGaming market being so young and many states still to legalise sports betting, investors are predicting huge growth over the coming years.
Looking for good companies in strong industries is not an easy task, especially not at the moment, but if you are competent and confident enough to do it, it could throw up plenty of opportunities.
Betting On Inflation?
Since the financial crisis of 2008 and 2009, central banks around the world have been undertaking something called “quantitative easing”. This is a technical term that essentially means printing more money, though instead of physically manufacturing more notes and coins, the banks just add some extra numbers to a spreadsheet somewhere.
The idea behind this has been to help banks improve their liquidity so that they can lend to more people and businesses, keeping the economy moving.
Critics of this have warned that “making the money printer go brrr” will lead to uncontrollable inflation.
Inflation is the force that devalues a currency, meaning something that costs $100 today could cost $102 next year and $104.04 the year after that. Economists usually want a little bit of inflation to promote economic growth but not too much that it leads to rapidly rising prices.
Countries like Zimbabwe have suffered from this in the past, requiring the creation of huge banknote denominations like the 50 and 100 trillion-dollar versions that were created in the late 2000s. These notes were practically worthless and couldn’t even be used to buy a loaf of bread.
Michael Burry, the investor who is famously depicted as predicting the 2008 housing market crash in the movie The Big Short (2015) has recently revealed in his 13F filings with the SEC that he is betting heavily on inflation being much higher for longer than central bankers are anticipating.
He’s doing this by shorting Treasury Bond ETFs as he predicts that the Federal Reserve will have to raise interest rates to stave off sustained high levels of inflation.
Those that wanted to also bet on inflation may want to replicate the moves of Burry or invest in assets like gold, though there is still no guarantee that this is what will happen.
Ultimately, there are a lot of opportunities for investors at the moment, though after such a turbulent couple of years, it is difficult to know which option is best for you. Of course, it goes without saying that you should always seek professional advice before making any investment decisions, but these are some areas that you may want to think about.