In the positive atmosphere at the beginning of the week, the President of the United States Donald Trump announced that his administration “seriously” considered a reduction of capital gains tax together with other measures aimed at easing the tax burden on Americans. The market confidence was enhanced by long-term massive monetary and fiscal incentives, and the growing hope of an effective vaccine against Covid-19, which followed the announcement made by Russia that its vaccine was approved for use outside of clinical trials.
The promise of the potential vaccine developed by major pharmaceutical companies supported by governments all over the world has not been fulfilled so far. Accordingly, the benchmarking barometer, S&P500 Index, opened close to its high, which was determined before the market slump caused by the coronavirus. The economic recovery resembles the letter “V“.
The chart above reflects the appreciation of S&P500 (candlestick chart) and NASDAQ (orange line).
In these times, there is a chance to appreciate your investments by investing in companies that are far from their intrinsic value.
The first alternative such as Tesla, Kodak, or Nikola that experienced their rapid growth but subsequently, their price on the stock exchange dropped or steadied at the current values. Analysts say about all of the above-mentioned companies that their fundamental value is lower than their current market value. Another category comprises technological companies such as Facebook, Netflix, or Microsoft whose price to earnings ratio achieves its record high at present but nobody has the courage to stake on their decline. On the other hand, there are commodities and their miners that are considered to be undervalued for a long time compared to other sectors and that is why some investors stake on their future growth.
There are many options to appreciate your investments. Nevertheless, the crucial current problem in the market is the stock exchange experiencing a massive inflow of retail investors who mostly invest based on mass hysteria, which results in an abnormal growth in certain financial instruments. However, such growth is an opportunity for rapid gains and losses. This is the reason why at present, you should pay much more attention to the selection of appropriate stocks than in the past.