The world is confused and frightened, so do the stockbrokers and investors. Global meltdown fears are on the rise. The year 2020 has been one amongst the most event-filled years ever happened. the story is no different for the stock markets. We have witnessed both record rise and fall of stocks inside within just 48 hours span in last week of February 2020. How often does this happens? But countless investors and pundits suggest that there is a fair amount of likelihood for Stock market crash 2021 to happen. If it goes that way, they claim that it is going to be one among the severe crashes in stock market history! So first let’s have a quick glance on what happened in stock market during corona pandemic in previous year.
The year 2020 – bull, bear, bull
Yes! Earlier in this year from late February 2020 to the 7th of April, the market experienced most devastating and fastest crash in global finance history. But the investors and stock market gurus were astonished by how quickly market bounce back to near-normal, regardless of the fact that corona remained an incurable threat for mankind. Stock market kept climbing and climbing and by mid of June, it has gained 38% growth from its record low point in February 2020. Now, at least in the papers, stock market is performing pretty decent!
What about S&P 500?
Let’s have a look on S&P 500s performance- November 2019 was a huge month of rotation, because of new corona vaccine news, it filled a lot of gains. Then month of December, I must say it was considerably pretty good. But late February and early March of 2020, this was in fact the quickest bear market crash in the history. The S&P 500 stocks were almost going down and we were expecting a huge economic as well as stock market crisis. Everybody believed the recovery form this crash could take years. But the transformation of market followed this was quick and unanticipated.
Despite the fact that lockdowns and second wave hit all across the world, US stock market was at record high. Let me put it this way, the stock market is back up after nearly falling off the cliff earlier this year, we see new record highs in S&P 500’S than ever.
The value of stock market is seemingly cut off from current events!
In the past 400 years, stock markets has been around. Their basic function hasn’t really changed. The purpose of stock market is for firms to be able to raise capital for companies to invest and grow larger. But recently, after November 2019, 22 million people went out of work only in United States. The Labour Market was stumbled! Companies were shut down and world economy was literally in hot water. Even though they managed to get 11 million people (at least half of them) back to work within a year, it couldn’t bring economy back anywhere near to pre-pandemic numbers. Since half of the jobs just vanished, the common are making less money so obviously they are spending less casio airpoerts and music venues are virtually empty.
Despite all the corona pandemic, however The Stock market continues to defy gravity. How?
- The Federal Reserve:
New Policies announced by the Federal Reserve pays a key role in rescuing stock market. They have issued many favourable Loans like emergency loans for banks, local governments and other players in the economy. That was something investors felt optimistic about.
Zero Interest Rates:
Federal Reserve slashed interest rates to nearly 0% which made it cheaper for companies to work with zero money and interest.
- Technology stocks:
During the corona pandemic, they single handily carried entire stock market. All other stocks related to travel, finance and education went down by a high proportion, but technology stocks were never at stake. Handful of technology stocks like Apple, Amazon, Alphabet and Facebook held their head high. On the grounds that these big names offer products to live life and conduct business during pandemic.
- Individual Investors:
There were a plethora of newbie investors who stuck during the pandemic and they opened up brokerage account because it’s never been easier to trade. You want numbers? Ok, one of the most popular online brokerage firm “Robin hood” have more than 3 million new subscribers! That means 3 million people started new investment accounts in 2020.
Even though stock market is at ever time big, they are at the biggest detachment ever from current economy. And now you know why.
So this detachment means the next Stock Market Crash in 2021?
As of today, the US Stock Market capitalization is at $ 39981.9 billion, which is about 188.9% of the last reported GDP.
US Stock Market capitalization refers to the total dollar market value of a company’s outstanding shares of stock. Commonly referred to as “market cap,” it is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share.
So U.S market capitalization is almost two times the GDP of United States (189%). So as of now U.S stock market is considerably more expensive than U.S GDP. Warren buffet once said that “You should be nervous if this number goes above 100%. And now it is almost double – 189%. Now you can see how far stock market is detached from the economy.
This can go in both ways
What could happen in 2021/22?
- S GDP increases to pre-lockdown levels, unemployment returns to all- time lows, American businesses resume record profitability.
Then, no more catastrophes in 2021!
- Or Consumer spending doesn’t recover, businesses reconsider expansion plans. America’s manufacturing, construction, airline, travel and restaurant industries don’t bounce back quickly. This is the most likely scenario imo.
Then, Welcome to Stock Market Crash 2021 (Or it can happen in early or mid 2022). But I have a strong feeling that the stock market peak will be in 2021.
The Last Man Stanidng
It is clear as sky that technology stocks are always a go-to, but not in time of a recession tbh. If you want to try something different and get ahead in the race, I have a less travelled path for you.
We just saw 900 billion drop into the world economy and guess what? Lot of that money is going into health care and biotech research. Not only are the big sharks investing in healthcare research, but also the government. Whenever government put money into something, that industry grows.
Biotechnology is one of the most exciting industry because we have a constant turn of news and market moving headlines every day.
Immunotherapies, CAR-Ts, RNAi, CRISPR – There is a lot to look forward which gives us promise. Fact 1- Not only we use biotechnology to treat patients but also to cure a thousands of diseases. Fact 2- The global trend of population, The age of average person alive is getting older which is a general push towards more and more spending on healthcare. When we combine these two factors, the future on biotechnology is looking very much bright.
Why Biotech Stocks?
During this year’s stock market analysis, Biotech Stocks are clearly outperforming the S&P 500 stocks during pandemic. Thanks to the research and major innovations on the fight against corona virus. I must say, biotechnology is the future if manufacturing. Huge Institutions to retail investors are betting on biotech these days.
Before 2 years, everything was super good. We must appreciate biotech for that. We are standing on the 150 years of outstanding scientific research. Biotechnology is so powerful – like we have seem genetic modification of crops was really a massive success. Vaccines against deadliest diseases are invented by years of biotechnology research. Now when we make things like this, we look to biology – Let’s say Biotechnology.
In my next blog, I will explain more about the top Biotech Stocks and a couple of ways to invest in Biotech stocks with minimum risk.
Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. – Paul Samuelson
As Paul Samuelson said, Stock market is not for everyone! If you have the patience to do research and study trends in the market, may be you can hit a home run.