The shutdown of several businesses and the lack of spending by fearful citizens has had a devastating effect on the economy due to the COVID-19 pandemic. The effects were quickly realized in the US stock market when it took a massive dip early during the crisis. While it has rebounded back, the impact on the economy must be considered when thinking about the goals associated with your investments.
Money Morning recently published an infographic featuring their investing experts answering the question, “how is the US economy doing?” The experts share their predictions for the short and long term economic impacts we can expect to see as a result of the COVID-19 pandemic.
Reviewing the infographic here gives a good idea about what Money Morning is recommending in terms of general investments during this time. Examining the “story” and the reasons why the company can withstand a crisis should help spotlight the logic behind their continued success. If the stock market crashes, the low-risk characteristics of these companies should still be suitable for holding in your portfolio. Volatile markets in uncertain times have occurred in the past. The investors who take the time to conduct research and invest in solid fundamentals should reap the rewards in the future.
Here are some other things you can learn in the Money Morning infographic related to investing in the stock marketing during this COVID-19 new normal.
COVID-19 Impacts the Stock Market
In February 2020, the Dow Jones Industrial Average Index looked like it could soon hit 30,000. However, this goal was never reached as it became apparent the economy was going to be severely hurt due to a global pandemic. The stock market proceeded to price in the devastating financial effects of an economic shutdown by moving the Dow Jones Industrial Average Index down to a bottom near 22,000 on March 23, 2020. Price action rose from this price range soon after, which may have surprised some analysts. The rise in the Dow and other major stock market indexes may have been due to investors who didn’t want to get caught missing out on a V-shaped recovery pattern, despite the predictions for poor GDP stats.
Tips for Investing in Volatile Markets in the Short-Term
Even though the market is volatile, there are still stocks worth purchasing. It can help to use less risky strategies and scope out the companies that are holding their own or going up when the market is declining. Exploiting volatility and excessive price swings can help you locate and enter the shares of a company when they are trading at a discount. Hedging is another way to protect your capital from the uncertainty of volatile markets. Employing this strategy can help you sleep at night and still go for bigger profits. Having gains from these types of protective trades is an excellent way to offset times when the market is going down.
Analyzing Investment Ideas for the Long-Term
Investing in this type of volatile market can be challenging. However, there are always moves an investor can make, it just involves research and critical thinking. Analyzing ideas can be easier when you consider looking for specific requirements. Companies with brand recognition, solid business models and a large accumulation of cash are more likely to withstand difficult economic periods. According to Money Morning “The reality is that the future of the U.S. economy is very uncertain. But companies with good businesses, cash hoards, and brand recognition are sound “safety plays”. They at least have the means to innovate during difficult times.” In other words, choosing to invest in companies with good growth prospects may help you pick stocks that are currently inexpensive but poised to do well in the long-term. It’s essential to make sure these types of companies have a good track record and a reason why they’ll continue to flourish.