As the end of 2020 draws closer, stock markets continue to push higher despite the backdrop of the economic downturn. Investors looking to capitalize on the current market trend should be mindful of the two indicators that are driving the market: value and momentum.
Value investing entails buying assets that are perceived to be undervalued relative to their peers. The goal of this strategy is to buy shares of an undervalued company before other investors recognize its worth. Momentum investing is an aggressive approach that relies on the momentum of a particular security or sector. Momentum investors buy stocks when they believe the price has been rising and will continue to do so.
With the stock market in a bullish trend, investors should be on the lookout for sectors that offer good value and momentum. This could mean buying shares of companies in industries that have remained relatively resilient during the economic downturn. It could also mean zeroing in on sectors that have started to show signs of growth or recovery.
Three sectors to watch are technology (software/hardware/electronics), biotechnology, and energy. Technology has been a hot sector throughout the pandemic as the widespread shift to remote work has continued to increase demand for tech-related products and services. Biotech has also been a strong performer in recent months as vaccine and therapeutics announcements have boosted sector sentiment. Energy is another sector to focus on as a recovery in oil prices has helped to stabilize the industry.
For investors looking to capitalize on the current bullish market trend, seek out value and momentum when selecting stocks. With a keen eye on sectors such as technology, biotechnology, and energy investors should be able to find winning investments as the year-end rally continues.