By Jake Sheckter
Is this bull market headed for a massive correction or does it still have room to run? Over the last eight months, the market, especially the arguably over-valued tech sector, has been a rollercoaster ride. Tech stocks with no new announcements or significant updates have gone on weeks-long exponential runs (Tesla Aug. 11-Sep. 1). Meanwhile, stocks with amazing earnings calls, incredible guidance, and projectionsro for massive growth took inexplicable dives (Peloton Sep. 10-Sep. 14). As North America moved indoors back in March due to quarantine restrictions, stock traders and those looking to start a new hobby took to simple, user-friendly apps like Robinhood to satisfy their market desires.
“In the first three months of 2020, Robinhood users traded nine times as many shares as E-Trade customers, and 40 times as many shares as Charles Schwab customers, per dollar in the average customer account in the most recent quarter,” The New York Times reported on Robinhood’s record success in July of this year. While apps like Robinhood help make the world of investing more easily accessible to the inexperienced trader, some argue that the app’s simplicity and gamified style “guides” users to certain actions which may cause large fluctuations in stock and option pricing. According to a research done by Investopedia “About half of Robinhood customers are first-time investors.”
Volatility is the name of the game right now, opening rare opportunities for astronomical returns in the options market and their respective astronomical risks. For those who like to play the long game, choose a great stock, and wait. Or, choose a stock with a decent dividend and collect 4% annually while you wait out the storm. But for the adrenaline junkies and thrill seekers, do some research on the company, analyze the trends, choose a stock, and get ready to sell when the stock jumps. It has not been uncommon as of late to see 20%-30% swings in stock prices over a matter of days or sometimes even hours. These gains have added billions to the market caps of these companies, while the companies themselves have not changed a thing.
How long is this going to last? And is it too late to get in on the action?
As political tensions rise in the United States and continue to do so as we get closer to November 3, the stock market will likely become increasingly volatile. With rumors of mail-in ballot fraud and talk of a contested election, instability could be a major player between now and November. If you like to “play it safe” and do not enjoy checking the stock market 20 times per day, you may find it wise to put yourself in a cash position before the 2020 election. Remember, if the market takes some big hits, that also means an amazing buying opportunity and great entry point for long term growth has presented itself. But, if you love keeping an ever-watching eye on the stock market and love the thrill that a volatile market provides, then by all means grab that bull by the horns and enjoy the ride, we ain’t seen nothing yet.