Most financial advisors tell their customers the best thing they can do to grow their wealth after getting rid of debt and preparing for the future is to invest. Of course, there are various ways to grow your money through investing, and countless vehicles to use for your trading strategy. Finding the right solution for you can take some significant time and investigation.
For the majority of people, the most common areas to explore will be either share and stock trading, or forex trading. With shares and stocks, you pay for portions of a company, which you can trade or sell at a later stage. With forex, or FX, you’re making money by buying foreign currency and exchanging it from one currency to another. Let’s explore whether FX could be right for you.
What is Forex Trading?
FX or foreign exchange trading is one of the most actively traded environments in the world. Companies, banks, and individuals alike all carry out huge transactions on a regular basis. While much of the foreign exchange that happens every day is done for practical reasons, most currency conversion occurs as a result of forex trading. The amount of currency big investors choose to convert in a day can even lead to price movements for some currencies, making the market more volatile. Although FX might seem quite complicated, it’s much simpler than you’d think. The process starts with choosing a pair, or two types of currency that you can trade against each other, like EUR/USD.
Unlike other forms of investment, forex is usually quite fast-paced, as it requires users to act on slight changes in the value of a currency to make the biggest profits. You’re constantly working finding the most valuable lots for your portfolio. For beginners, it can be a little tricky to get started, which is why it’s so valuable to read guides that explains the considerations involved when investing in foreign currency in Australia when first getting started.
Is FX Trading Profitable?
For those looking to grow their wealth, the right forex trading strategy can be extremely beneficial. There are plenty of people out there who have made money by trading regularly in the foreign exchange market – but not everyone is suited to this task. If you’re looking for a more long-term solution where you can invest in something and leave your money to grow over time, this probably isn’t the environment for you.
Forex is all about speed and timing. You need to ensure you’re acting as quickly as possible when little changes happen in the market, or you could risk losing a lot of cash. However, if you have the time and skills to focus a decent amount of attention on this type of trading, it could be a powerful tool. As with most forms of wealth building, it will be up to you to determine how much risk you can take on as a trader, and whether the forex environment is a good place for you to begin exploring. There are always plenty of other options if you decide forex is too confusing.
Imagine a world without law and order. No rules, no guidelines, no restrictions, no control, everyone having the liberty to do as they please. What comes to mind as the inevitable outcome? Chaos. Utter commotion. The same would be the fate of the forex market, with its $5 trillion worth, if it were left without regulation.
What is Forex Regulation?
Forex regulation is a system of checks that have been put in place to ensure that the forex market is a safe place to be. These checks include the setting up of legal and financial standards. For compliance with these checks to be ascertained or verified, watchdogs or overseers have been set up to monitor the behavior of industry players. These bodies are called regulators.
The primary purpose of regulation is to protect investors from fraud. Forex broker reviews can help answer questions such as is thinkmarket legit? And can help to guide investors to forex brokers that are regulated.
Who Regulates the Forex Market?
There is no central regulatory body in charge of global forex regulations. Regulatory bodies are set up at local levels across the world. Each of these local regulatory bodies functions under the ambit of the laws governing their respective jurisdictions. However, all regulatory bodies in the EU can operate in all the countries on the continent. One of the most widely used regulatory bodies in Europe is the CySEC (Cyprus Securities and Exchange Commission) which is based in Cyprus. Other major regulatory bodies include the Australian Securities and Exchange Commission (ASIC), Securities and Exchange Board of India (SEBI), US Securities and Exchange Commission, Financial Services Authority (FSA) UK and the Autorité des marchés financiers (AMF) France.
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How the Forex Market is Regulated
Forex market regulators set guidelines for forex brokers to abide by. These guidelines protect investors and maintain order in the trading arena.
The regulator is saddled with the responsibility of conducting periodic audits, reviews, and inspection of the financial, legal, and customer-related activities of the forex market players. These guidelines ensure that brokers abide by a set of fair and ethical rules. When these guidelines are not met, a regulator has the power to enforce punishments on the erring broker.
Forex regulation is done in compliance with the prevailing laws of each jurisdiction. These laws spell out a host of requirements for forex brokerage and some elements of these regulations vary from one jurisdiction to another. However, some fundamental standards cut across every area or region of forex regulation. These are;
Registration and Licensing
Regulators are responsible for the registration and licensing of forex brokers. Only pepperstone regulated brokers are safe for investors.
Audits and Reviews
Periodically, regulators look into the books and general affairs of brokers to ensure that they comply with all financial and ethical standards. For example, there is lots of information that brokers are mandated to pass across to investors. Brokers who fail to do so are punished by regulatory bodies.
The role of regulators is crucial to the safety of your funds. Questions about regulation should be a priority for every investor. Broker reviews should be properly consumed by traders before working with any broker. If a broker isn't regulated, steer on the side of caution and avoid them.
The FTSE 100 rose on Wednesday, rallying after a mass sell-off led to a 2% fall in the previous session.
The index rose 0.6%, lifted by oil giants BP Plc’s and Royal Dutch Shell’s respective gains of 2.0% and 1.7%. The surge followed a report from Azerbaijan’s energy ministry said BP’s oil output reached 5.9 million tonnes in the first quarter.
Some stocks continued to slip, however. Just Eat Takeaway.com fell 4.2%, slumping to the bottom of the index, following news that rival Uber Eats plans to expand into Germany.
Meanwhile, data published on Wednesday indicated that inflation in the UK rose to 0.7% in March, in line with expectations.
The FTSE 100’s positive performance follows a sell-off on Tuesday that led to major indices in Europe and Asia closing as much as 2% in the red. US markets were also negatively affected, though not to such an extent; S&P 500 futures and Dow Jones futures were flat, while Nasdaq futures fell 0.1%.
The sell-off appeared to be triggered by anxiety over rising COVID-19 cases in India and elsewhere, and their implications for the economy. IAG dived by 8.1% on concerns over travel plans being scrapped, while hotel operators Whitbread and Intercontinental lost 4.8% and 4% respectively.
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Overall, around £37 billion was wiped off the FTSE 100 on Tuesday.
While the London-based index rallied on Wednesday, Germany’s DAX and France’s CAC 40 respectively gained 0.2% and 0.4% by mid-morning.
Every successful person in this world is industrious, and they also possess a calm and rational mindset. Investors who have gained success in the Forex platform may hold a different mindset, but one thing can be found which is common to all, and that is that they are not whimsical. A person who is indecisive and cannot think clearly about what they should do can be compared to a rolling stone that cannot gather any moss.
To be a trader, a beginner must build a trading mindset that will allow them to stand against all odds. If you do not own a strong mind, trading is not for you as the market is highly volatile and everyone has to taste some loss. Today, for beginners, we will describe the ways to build a trading mindset that will be fruitful to win in most trading battles.
1. Anger
Professionals never get angry for silly reasons, and they are skilled enough to manage their anger. This childish attitude may be found among the beginners who cannot take their first loss on the platform easily. They plan to make double the profit next time with a higher investment, which turns into an irony later. One thing they should keep in mind that no one may give them the assurance of making a profit in Forex or other markets. Success depends totally on the research methodologies of each investor.
Without conducting any deep research, an angry trader is bound for the rainy days in the future. Always try to trade FX options online with a stable mindset. Control your anger as it will make things extremely complex and make you an ultimate loser.
2. Greed
Executing a trade is not like gambling, where one can wait for the return of their luck. A lot of study and devotion is needed here to gain success. The idea of greed must be kept away from the mind of an investor. Some investors think if they invest double, they can make double the profit too. In reality, the opposite is often true, and the traders have less chance to make a double profit with a double investment. Greed is forbidden in every religion, and a newbie must not invest because of greed. They must calculate the risk to reward ratio and, based on that, they should measure the investment they are going to make. By being a greedy trader, you may lose all, and for this reason you should not forget the old saying: “Grasp all, lose all.”
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3. Overtrading
There is a class of traders who are absorbed in overtrading, which makes their capital drain away. You must not go into another trade until you receive the return from another. This method can be good for the scalpers, but beginners must avoid this tendency at all costs. To solve the issue, you can write down about the trades you join each day. Then, you may set a goal that says that you will not trade more than three times a day.
4. Physical exercise
Professionals often take up a gym membership and do daily physical exercise, which helps them to build a productive mindset for trading. They start their day in the gym or on a morning walk, which allows them to be active all day long. Meditation and yoga also work as a great way to keep your mind under control.
To conclude, it can be said that a trader must build a trading mindset to get success in Forex or other markets. The mind is regarded as the power of all success, and if our mindset is not positive, we will end up trading and dealing with huge losses. Professionals focus their attention on keeping their psychological balance to always to cope with all types of trading situations.
Sezer Sherif, founder and CEO of investment group Vector Capital, outlines the role of hedge funds and their role in the market.
GameStop Corp is an ailing Fortune 500 company, headquartered in the US, that offers a range of games and entertainment products across ten countries. In January, the company was embroiled in what was widely reported to be a “David and Goliath” battle between large hedge funds and small investors.
This was because the price of the company’s share suddenly and unexpectedly started to skyrocket in value, defying the exceptions of Wall Street traders. They had sought to make a profit by selling large volumes of the company’s shares in order to push their share value down. These “short-sellers” would then bet on a decline by selling borrowed shares in the hope of repaying at a lower price.
Unfortunately for them, investors from the Reddit forum Wall Street Bets saw the opportunity to buy the shares at a bargain price and started a campaign to push them back up again. The result was billions lost by some major players on the stock market and a few Wall Street Bets users becoming millionaires. Regrettably many amateur investors, not heeding professional advice and caught up in the media excitement, bought GameStop shares just before they crashed, which resulted in them losing their hard-earned savings.
The takeaway from this event is that investing in the stock market can be an enjoyable and a profitable experience, but only when performed correctly. Those attracted by the GameStop hype or wanting to become the next “Wolf of Wall Street" will quickly become undone, or fail to take more suitable opportunities, if they do not take the time to fully understand what they are getting into.
What is a hedge fund?
At its simplest, a hedge fund is simply a way to invest in the stock market with the aim to create money for its creators and investors. They are regulated by the Financial Conduct Authority (FCA).
UK hedge fund managers are required under the Financial Services and Markets Act 2000 to gain approval to establish a new fund. They must also demonstrate adequate financial resources and appropriate staff, systems, and controls to manage the fund.
At its simplest, a hedge fund is simply a way to invest in the stock market with the aim to create money for its creators and investors.
Once approved, a hedge fund manager will invite investors to pool their money in order to fund one large portfolio in accordance with their set strategy, which is then spread across many investments. Whether that be real estate or emerging markets such as the BRIC economics – Brazil, Russia, India, and China.
This minimises risk and is also a lot simpler than buying shares individually or directly from a company. Investor returns are typically generated as dividends or interest distributions. In return the hedge fund managers will receive a performance fee, which can be as much as 20% of the fund’s profits.
How do they work?
It is commonly accepted that Alfred W. Jones is the father of the hedge fund industry. While working at Fortune magazine, Jones wrote an article titled “Fashions in Forecasting” (FIF) in which he had an insight that that would make investing more profitable and less risky. This is achieved by “hedging”.
There are many different types of hedge funds and their managers invest according to different goals and strategies. They are similar, though, in their desire to make money in spite of market fluctuations. They achieve this by holding both long and short stocks.
Imagine the fictional IT company, the Acme Corporation, invents a quantum computing chip that will vastly increase computing power as we know it. This will likely mean its share value will increase while that of its nearest and less innovative competitor will drop. A textbook hedging strategy by a hedge fund manager would be to go long on the Acme Corporation, while shorting its rival, with investments of the same value.
If the value of the IT industry increases, you will generate a return on your investment in the Acme Corporation that should outweigh the loss of having invested in the competitor. Alternatively if the IT industry goes down in value you would lose money from Acme Corporation but make it from its competitor.
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By hedging both sides, a hedge fund manager can insure against risk but at the cost of greater profit.
What do they offer to consumers?
Investing in a hedge fund led by a highly experienced and performing hedge fund manager can deliver some excellent returns on your initial investment but you may be exposed to greater levels of risk than other means of investment.
Remember that hedge funds are typically utilised by large companies, but high net-worth individuals can and do invest in them. Unfortunately, the sums required are often beyond the means of the average retail investor. The alternative is for them to invest in a “fund of funds”. This is a fund that invests in other mutual funds or hedge funds and provides retailers with the advantages associated with broad diversification at minimal risk. They are also a great way to access to an investment vehicle that might not have otherwise been accessible. For the privilege though, there is typically an additional layer of fees to be paid.
Before you invest in a hedge fund, you must make sure you are prepared and suitable (financially) for the venture. Due to the large role they play in managing your money, you also want to make sure any hedge fund manager is qualified to do so. Finally, always read through their sales literature so you understand the nature of the risks and returns you may receive. If you are in any doubt if the fund is suitable for you then seek independent financial advice.
Bitcoin continued its gains on Tuesday, reaching a new record high as a surprise investment from Tesla made the asset’s drift towards the mainstream more convincing.
The cryptocurrency hit a high of more than $48,000 during morning trading before dropping back below the $47,000 mark.
Naeem Aslam, chief market analyst at AVATrade, expressed optimism at the apparent bull rally, remarking that it seems like “nothing is going to stop the bitcoin price from touching the $50,000 price level”.
The record gains were observed as Bitcoin has seen a significant rise in attention from mainstream firms – first from PayPal, which moved to adopt Bitcoin as a supported transaction method on its platform last year, and more recently from Tesla, which revealed on Monday that it had invested $1.5 billion in the currency.
Like PayPal, Tesla also said that it planned to accept payments from its customers in the form of Bitcoin.
However, Bitcoin is not the only cryptocurrency to have seen a surge of investor interest. Dogecoin, the meme currency boosted by Elon Musk as a “joke”, has risen 800% in a matter of days. Bitcoin’s more serious rival, Ethereum, also reached a record high of $1,784.85 on Tuesday morning trading.
While Bitcoin’s jump on Monday was the largest daily rise seen in more than three years, it follows a period of significant growth. The cryptocurrency has more than doubled than value over the past two months as traders have sought out alternative wealth stores.
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The total capitalisation of the cryptoasset market is now an estimated $1.2 trillion, though regulation of the digital-only currencies is still light.
US Treasury Secretary Janet Yellen is calling a meeting of several key financial regulators this week to discuss market volatility driven by retail trading in GameStop and other equities favoured by online investors.
Yellen will convene the heads of the Securities and Exchange Commission (SEC), the Federal Reserve, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission, Reuters first reported on Tuesday.
Yellen sought a waiver from ethics lawyers prior to calling the meeting, according to a document seen by Reuters. Her decision to seek permission follows reports that she received $700,000 in speaking fees by hedge fund Citadel, a key player in the GameStop saga, potentially creating a sticking point for Yellen.
A Treasury official, who declined to be named by Reuters, said the meeting would be held this week, potentially as early as Thursday.
“Secretary Yellen believes the integrity of markets is important and has asked for a discussion of recent volatility in financial markets and whether recent activities are consistent with investor protection and fair and efficient markets,” said Treasury spokesperson Alexandra LaManna in a statement to Reuters.
The move by Yellen follows a week of unprecedented market volatility as retail investors piled into stocks that had been targeted by short-sellers. Brick-and-mortar video game retailer GameStop saw the most trading activity, with its stock price rising more than 1,600% from its state at the beginning of the year, though other struggling outlets including AMC, BlackBerry and Bed Bath & Beyond were also affected.
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The investors’ coordinated push against short-sellers cost hedge funds billions of dollars, with the resulting volatility causing Robinhood to restrict purchases of the focal stocks – a move which also caught the attention of lawmakers, who subsequently called for an investigation into the platform.
Coinbase, the most prominent cryptocurrency exchange platform in the US, is planning to go public through a direct listing, the firm announced in a statement on Thursday.
The San Francisco-based firm previously stated in December that it had confidentially filed registration documents with the US Securities and Exchange Commission (SEC), though it hadn’t disclosed that it would pursue a direct listing rather than a traditional initial public offering. Its statement on Thursday did not detail when the stock would be listed or under which ticker.
The SEC has approved a proposal from the New York Stock Exchange to allow companies to raise primary capital while listing directly, removing what had previously been a significant drawback of bypassing an IPO.
Direct listings enable companies to skip elements of the standard IPO. The need to price and sell a block of new equity is removed, allowing the firm to simply list its shares to become available for trading. This method usually requires a high degree of visibility to prove attractive.
As it goes public, Coinbase will join a small number of other tech companies that have previously undergone direct listings. Consumer-facing companies like Spotify have listed directly, and online video game company Roblox Corp has also announced its intention to go public via direct listing.
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Founded in 2012, Coinbase allows its users to buy and trade decentralised tokens including bitcoin and Ethereum. It has raised $547.3 million in funds as a private company.
European stocks opened lower on Thursday following an overnight sell-off on Wall Street that weakened equity markets globally.
The Dow Jones closed down 2% on Wednesday, the index’s biggest single-day fall since October. The slump came shortly after a pessimistic assessment of the US economy from the US Federal Reserve, and amid a market war between activist retail investors and hedge funds in parts of the market. The S&P 500 also lost 2.5%.
Asian stocks slid shortly after the Wall Street sell-off, with Japan’s Nikkei falling 1.5% -- its own steepest drop since October – and South Korea’s Kospi fell 1.7%. Chinese blue-chip stocks also lost 2.7%.
Losses were mirrored in European stocks when markets reopened, with the FTSE 100, CAC 40 and DAX sliding 1.5%, 1% and 1.7% respectively.
Though impactful, the Federal Reserve’s pronouncements on Wednesday were overshadowed by activity around so-called “Reddit Stocks” – equities being boosted by a wave of investors aiming to lift stocks that hedge funds are attempting to short, causing immense losses on Wall Street.
The focal point of the war is GameStop, a high street video game retailer that was targeted by short-sellers and then saw a flurry of trading activity as investors flocked to it. The company’s shares jumped 134% on Wednesday alone and are currently valued at $347, having been down as low as $17 earlier in the year. Cinema chain AMC has also been boosted by the movement’s attentions, gaining 300%.
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“The whole business is seen as a trump for the little traders, the Robinhood account holders who use Reddit to get their financial information,” said David Morrison, market analyst at Trade Nation. “On the other side is the Wall Street players who would happily see GameStop go out of business and people lose their jobs if it brought from a profit.
“Of course, life is never that simple, and the GameStop story is far from over as traders hunt out other heavily-shorted stocks. But it’s a salutary tale of our times and a timely reminder of the dangers that can lurk when shorting individual stocks."
Giles Coghlan, Chief Currency Analyst at HYCM, explores the developing impeachment story and what it portends for markets in the US and around the world.
Donald Trump has become the first president in US history to face congressional impeachment twice over. Following a controversial rally that resulted in his own supporters storming the Capitol building on 6 January, it seems he has now lost the support of the Republican party. This is significant, as it now means he is vulnerable to an indictment from the Senate.
You would be forgiven for expecting such unprecedented political developments to have knock-on effects throughout the world’s financial markets. To the contrary, however, the response has been muted, which came as somewhat of a shock for some.
As a matter of fact, US stocks actually saw record highs in the days following the DC rioting. The Nasdaq closed above 13,000 points for the first time in history on 7 January, a positive reaction to the Senate’s confirmation of the 2020 US presidential election results. On top of this, the S&P 500 and Dow Jones indexes also witnessed impressive gains on the same day.
Having analysed market movements over the past week, there are signs that these rallies are the result of the US finally confronting its own deep political divisions. Congressional representatives are no longer defining themselves by their support, or opposition, of the president. This means that substantial aid spending and stimulus investment can now be approved through both legislative houses. Markets have responded well to the details of President Biden’s spending plans thus far as well as the gradual roll-out of COVID-19 vaccines; signifying that the end of the pandemic now lies within sight.
As the Senate begins preparations to formally indict Trump however, potentially barring him from holding federal office in the future and depriving him of many luxuries normally afforded to former presidents, could future impeachment-related market upsets be on the horizon?
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At present, it’s almost impossible to say for certain. The S&P 500 advanced to 3,205.37 points on 19 December 2019, following Trump’s first impeachment hearing; indicating that financial markets are generally apathetic to impeachment developments on the whole.
Although the circumstances have since changed, with the Democrats' control of the Senate meaning that impeachment can now obtain bicameral support, Joe Biden’s incipient inauguration means that any outcome will have only minimal effects on the US presidency or the global economy.
Of course, these recent gains could be challenged if the first month of Biden’s presidency is beset by mass rioting from Trump’s most ardent supporters. However, even if such mass protests do take place, investors the world over fundamentally recognise the US as a country of law and order; where civil unrest never becomes widespread and is normally quickly contained.
Nonetheless, traders and investors must take note of any potential risks to their portfolio’s performance in 2021. Given how eventful 2020 was, it seems likely that there will be some unexpected political developments that could take the financial markets by surprise this year. As such, investors must be prepared for any eventuality.
In the world of investing and trading, you never know what the news each week can bring. Investors must prioritise meticulous market research and having a plan for potential market shocks in 2021, or else their portfolios could be taken for a spin when the next big political story comes along.
European and US markets saw a surge on Wednesday as Joe Biden was officially sworn in as the 46th US president.
The Dow Jones, S&P 500 and Nasdaq each hit new records as markets closed. After making gains on Tuesday as Treasury secretary nominee Janet Yellen urged Congress to “act big” on economic stimulus, the S&P 500 ended 1.4% up in a closing record.
The tech-heavy Nasdaq index was also boosted 2%, aided by a jump in Netflix stock as the company suggested share buybacks to come.
European stocks opened higher on Thursday morning, with the FTSE 100, CAC 40 and DAX respectively gaining 0.4%, 0.% and 0.6%. US markets also appeared ready to hit further peaks, with Dow Jones, S&P 500 and Nasdaq futures respectively up 0.2%, 0.3% and 0.6%.
Asian stocks also hit record highs overnight. Japan’s Nikkei rose 0.8%, while Korea’s Kospi rose 1.5% and Chinese blue-chip stocks added 1.75%.
Traders’ optimism was owed in large part to Biden’s proposed $1.9 billion stimulus package and was probably not hurt by his inauguration speech focused on “bringing the country back together”, according to CMC Markets UK’s chief market analyst, Michael Hewson.
The stimulus package would bring a raft of measures intended to support citizens and businesses impacted by the COVID-19 pandemic, with the issuing of $1,400 payments to eligible persons being its flagship feature. Also on the table are a temporary increase of tax credits, subsidies for health insurance premiums, and a new grant program for small business owners separate from the existing Paycheck Protection Program.
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The newly inaugurated president has also stated that a second spending plan will arrive “in the first few weeks” of his term, likely introducing new measures to create jobs and reform infrastructure.
President Joe Biden was officially inaugurated on 20 January, offering a dramatically changed political outlook from the outgoing Trump administration. Equally significant, Biden enters office buoyed by a “blue wave” that has seen Democrats gain majority power in the Senate while retaining a majority in the House of Representatives, granting the party effective control of both the legislative branch and the presidency for the first time since 2011.
Though the new administration will be faced with numerous economic challenges, it will have the political clout to enact drastic policies to tackle them. What does this mean for investors on the hunt for prime stocks? What are safe bets, and what bubbles may soon burst?
Green Energy
“Build Back Better” has been a common slogan ever since the 2020 campaign, broadly summarising the new administration’s aim for the US economy. The Biden-Harris campaign website specifies the creation of “an equitable, clean energy future” as a key plank in this. With the spectre of climate change becoming an ever-greater threat to the global economy, we can expect to see a good deal of renewed attention given to green business.
Naturally, this is good news for companies with a focus on renewable energy. Investors may soon see positive movement in NextEra and other utilities with wind and solar assets. Clean energy system manufacturers such as First Solar and Emphase Energy are also worth a look – as are electric vehicles companies. With Biden having voiced ambitions of creating 1 million jobs in the auto sector and incentivise EV production, the future looks bright for the likes of Tesla and Workhorse Group.
Infrastructure
Alongside Biden’s promises of greater green energy investment is a pledge to invest comprehensively in American infrastructure. Roads, bridges and energy grids are all noted as areas of concern that will soon see government investment.
With the spectre of climate change becoming an ever-greater threat to the global economy, we can expect to see a good deal of renewed attention given to green business.
A natural beneficiary of this focus on infrastructure (if Biden is serious) would be construction companies like building materials supplier Martin Marietta and equipment maker Caterpillar, both of which were heavily impacted by the onset of the COVID-19 pandemic but have since rebounded. It’s a telling portent that the Global X US Infrastructure Development ETF (PAVE), which tracks some of the largest industrial, construction and transportation companies in the US, saw a rally in the week of the election and an overall jump of 26% in the past three months.
While the optimistic rumours of a big infrastructure deal may not come to anything under the new government, telecom providers in particular can expect a boost from Biden’s promise to work towards universal broadband. AT&T, Comcast and Verizon, among other big players, can be expected to make significant gains.
Big Tech
Tech giants like Amazon, Google and Facebook occupy a strange position in the US economy. Though their market values have never been higher, and they have managed to keep up consistently high performance during the COVID-19 pandemic while other businesses have foundered, politicians from both sides of the aisle have managed to find an opponent in big tech.
Now, with majority power in Congress, Biden and his party are in a position to heavily regulate or even break up the “Big Five” of Amazon, Apple, Facebook, Microsoft and Alphabet. Notable Democrats like Elizabeth Warren have come out in support of breaking up tech giants; the Democrat-led House antitrust committee has found that the Big Five “hold monopoly power”. Biden himself has publicly criticised Facebook for providing a platform for his predecessor to “spread fear and misleading information”, though he has stopped short of recommending its breakup.
With tech companies enjoying more influence than ever before, it remains to be seen just how far the new administration will go to curb their power. The September and November tech selloffs have shown that the Big Five’s stock is not invincible; 2021 may see the end of tech giants as a sure bet for investment.
Though their market values have never been higher, and they have managed to keep up consistently high performance during the COVID-19 pandemic while other businesses have foundered, politicians from both sides of the aisle have managed to find an opponent in big tech.
Cannabis
Though not as high-profile an issue as climate change, the debate surrounding the regulation of cannabis played a role in the outcome of the presidential election and will likely have consequences for the markets. Biden’s campaign platform included the decriminalisation of cannabis at the federal level, which – while not the same as outright legalising the drug – would pave the way for long-awaited cannabis banking reform and greater acceptance of the substance’s recreational use over time.
Several other Democrat leaders, including New York governor Andrew Cuomo, have vocally supported the legalisation of cannabis, as have 66% of Americans, which bodes well for the future of the industry. Worldwide cannabis sales tripled to almost $11 billion from 2014 to 2018; Wall Street analysts predict that figure could land anywhere between $50 billion and $200 billion a year by 2030. In the shorter term, investors may want to keep a close eye on Canadian cannabis producers such as Organigram Holdings or Harvest Health & Recreation Inc – or Tilray, which managed to double its value in January alone.
More Broadly
One of the final sectors that is sure to see movement in the Biden era is healthcare. Looking past the headline-making pharmaceutical companies producing COVID-19 vaccines, and the fact that Biden has not embraced “Medicare for all” like many of his fellow Democrats, the health industry will undoubtedly be boosted in at least some areas by the new president’s policies. Biden has promised an option “like Medicare” for individual health plans, a boon for existing Medicare supplemental plan providers like UnitedHealth Group. As many as 23 million Americans could be made eligible for Medicare under Biden’s policies, which is sure to elevate healthcare fortunes.
And to move back from specific industries, there is reason for investors across the board to take note of the incoming administration’s policies. Biden has stated his intention to raise the corporate tax rate back to its pre-Trump level of 28% and to tax foreign income more aggressively, which obviously bodes poorly for the stock market. But before that can occur, a $1.9 trillion COVID-19 stimulus package is sitting on the table, sure to lift US markets broadly should it pass Congress.
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This stimulus package and the measures that may follow it, with a second spending plan slated to arrive “in the first few weeks” of Biden’s term, should give traders plenty to be optimistic about in the short term. Whether the specific industries listed above ultimately see their fortunes raised will depend on negotiations in government and the evolution of external factors like the ongoing pandemic, but prospective investors would do well to plan for the new president’s policy objectives in the years ahead.
