In today’s article, “Changes in Market Patterns: An Inside Look at Investing Strategy” we will be discussing some of the change that has been happening in the markets and what to keep an eye out for so that you are able to protect your investment portfolio. Just like 2020, 2021 is proving to be a whirlwind year for the markets. Stocks, market indexes, and more have been up and down with extreme record highs – and often steep drop-offs.
From GameStop and AMC stock that dominated the investing work for weeks (you can read more about that and the influence it had on the market here), to the wonder of Dogecoin, to the S&P 500’s and other indexes’ many record highs – it is clear that the way the investing world works is in a shift period. It is both easier AND more difficult than ever to stay informed on what could potentially cause your investments to dip or rise. It is easier to stay informed because we have an abundance of information available at our fingertips at any given moment that is constantly being updated to reflect the most current news. If you want to learn about something – odds are you can find it online. With that being said, it is increasingly difficult to decipher what is quality information and what isn’t. Anyone can post to the internet and people often have an agenda behind what they’re posting. The abundance of information has lead to many traders investing emotionally – easily swayed by both good news and bad, as well as by what others have to say. It is important to keep emotion out of investing and to think critically. Investing should be based on predictions based on a set of concrete criteria as emotionally buying or selling stocks in a split second often leads to MAJOR losses in the long run.
Here at FFR Trading, we would like to impart the importance of utilizing a trading strategy. Just like anything else – trading and investing should consist of research, logic, and data analysis. While there is no strategy that wins every time, you can increase your chances of success by giving yourself a fighting chance! Whether you’d like to try that on your own or with a professional trader or a member of our client care team is totally up to you! Now, let’s dig into what’s changing in the markets!
Let’s discuss interest rates! Interest rates have been low this year and have been bolstering the economy – encouraging a real estate and spending boom. With that being said, on Wednesday, major market indexes tanked due to a release from the Federal Reserve stating that they expect interest rates to rise by 2021 – which is much sooner than previously expected. Investors reacted to the news by dumping certain stocks – particularly S&P 500 and Dow Jones Industrial Average held ones. Keep in mind this is just days after yet another market record for the S&P 500 – indicating just how fickle trades can be.
Inflation has been a major concern this year and will likely continue to be on investors’ minds. The Labor Department’s Consumer-Price Index increased 5% this May from just a year ago even as consumer spending and demand fell this month. Inflation has its hand in every pot – from stock valuation, to real estate, to even being one of the driving forces behind interest rates and other factors that influence the investing world. Keep an eye out for shortages and a change in behavior from traders and workers alike. Be sure to check out our Instagram and view our videos on inflation to learn about what inflation means for you and how you can track it!
Lumber was a hot commodity the past year – one that we used to make our investors a lot of money like here! Now, on the other end of the tunnel, lumber prices (for both futures and cash prices) are declining at an extremely rapid rate. Wood hoarders are rushing to sell their stock. Still, it is important to remember that with the housing market in its current boom demand is likely to remain relatively high for several years. Stay tuned for more updates!
Cryptocurrency is another area of investing that posts a significant amount of change. The market behaves slightly differently than the traditional market – heavily influenced by big personalities from Reddit and big names like Elon Musk. For example, the valuation was moved drastically by statements from Elon Musk regarding whether or not Tesla would accept Bitcoin as a currency and by Reddit-inspired shorts. Cryptocurrency does have the potential to make investors a lot of money, but keep in mind that it is fickle and requires extra attention. Being proactive rather than reactive is the name of the game. If you are reacting to changes in cryptocurrency you are already too late. Pay attention to data and form research-based projections.
On the other end of the spectrum is a more traditional edge of the market – big banks. While Wall Street banks have posted amazing results this year a recent interview with big bank executives from JP Morgan, Morgan Stanley Citigroup, and more indicates that their period of incredible gains may be drawing to a close. While they are still expected to perform well, it is unlikely that it will be at the same rate as much of 2020 and 2021 as the majority of their gains came from sold corporate debt. With that being said, it will be interesting to see if the new predicted increase in interest rates will produce higher gains for big banks in the long run.
That sums up our article “Changes in Market Patterns: An Inside Look at Investing Strategy.” All in all, 2021 shows no signs of slowing down and fast-paced changes in the market look to be part of the “new normal.” As always, FFR encourages all investors to keep track of their investments, act logically rather than emotionally, and focus on predicting market trends based on data rather than reacting to market movement as it happens. At FFR Trading, we pride ourselves on helping investors grow healthy and robust portfolios that suit their investment goals. If you are interested in learning more about our trading strategies or would like to speak with one of our client care specialists for more information, give us a call at (800) 883-0524 or contact us via email or our contact form. We are always happy to help! Happy trading, everyone!