over 3 years ago • 3 mins
Financial markets are notoriously forward-looking, and no sooner was there encouraging news about coronavirus vaccines than analysts started to think about 2021 with a renewed sense of optimism.
At the start of 2020, only one analyst predicted the key US stock market index – the S&P 500 – would rise 7% from the end of last year to hit 3,500, let alone exceed that level as it’s since done. And when coronavirus spread around the world like wildfire – not to mention the actual wildfires that spread like wildfires – that bold shout looked more and more farfetched.
But stock markets rebounded almost as quickly as they’d collapsed. That was mostly down to Big Tech, which benefited from the pandemic thanks to the demand for remote-working tools, video-streaming services, and social media platforms. But it was also because investors’ had adjusted to the disruptive effects of coronavirus, and started to picture a time when the global economy was growing again. And as time rolled on, investors who bought stocks in anticipation of a time when everything would be okay more than offset any pandemic-related setbacks, like new waves and a lack of government support.
And things started to look even more okay this month, with news of vaccine progress from both Moderna and the partnership of Pfizer and BioNTech helping send stock markets to record highs. Looking ahead, Goldman Sachs thinks a recovery in global growth will be particularly good news for economically-sensitive areas: think energy, financials, and emerging markets. Commodities should also benefit from an uptick in the economy, which is why the bank’s recommending investors buy gold, silver, and oil – whose price it’s expecting to rise 50% from this year’s doldrums.
A company’s stock is theoretically worth precisely as much as its future cashflows, discounted back to today. But that’s the problem: calculating those cashflows and how much to discount them by isn’t precise. One thing’s for certain, though: companies’ stock prices will keep rising in the long run if, in aggregate, they continue to grow their earnings. That can only be good news for long-term investors, even if they’re understandably worried by short-term drops.
Some things never change: the debate over cheap-looking value stocks versus fast-climbing growth stocks has continued to rage throughout all this. While growth stocks are theoretically less appealing in times of improving economic growth – and value stocks more so – analysts aren’t confident things will play out that way. One reason is that there may be even more stay-at-home orders before there are enough vaccinations to end self-isolation once and for all, and that’ll benefit fast-growing tech companies all over again.
S&P Dow Jones confirmed early last week that Tesla would finally be added to its US S&P 500 stock market index. Starting next month, investment funds that track the index will be forced to own the electric carmaker’s shares, which might’ve encouraged investors to buy in ahead of that fresh demand (perhaps hoping to sell at a profit next week). That might be why the company’s stock price had climbed almost 20% by the end of the week.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.