2020 was a volatile, if not downright strange, year for the S&P 500 Index.
From historic highs in February to the brink of collapse and back up again, it was a rollercoaster ride that had long-term investors concerned and new investors scrambling for a bargain. By the end of 2020, the index reached an all-time high of 3,756 points.
During the depths of the COVID-19 crisis, that seemed almost impossible. However, it happened and served as a timely reminder that almost anything can happen in the financial world.
Indeed, with political changes in the US already having an impact on the S&P 500, we can expect more ups and downs in 2021.
During the first two weeks of the year, the index’s value dropped to 3,700 points before hitting another new peak (3,824 points) on January 8. It subsequently dropped but remains stable.
Analysts at Goldman Sachs believe Joe Biden’s new administration will provide an additional boost for the S&P 500. By their calculations, the index will end 2021 at 4,300 points. Chief equity analyst David J. Kostin mapped out the projected 14% increase in value over the coming months.
Analysts Bullish on S&P 500 but Certainty Isn’t Guaranteed
At the heart of the bullish forecast is the expectation that US GDP will increase by 6.4% in 2021. That may well happen, but we can’t know for sure.
As an investor, maintaining a flexible position is crucial in potentially volatile markets. We don’t yet know how Biden’s presidency will play out as it’s too early to tell. What’s more, the world at large is still gripped by COVID-19. Predicting the evolution of a natural phenomenon (i.e. a virus) is tough.
We could see a massive resurgence that forces major economies, including the US, into another mass lockdown. If that happens, the S&P 500 Index may not achieve the value analysts expect.
Investors, particularly retail investors, need to exercise caution. This is where binary options could be a benefit. There are no certainties in trading. However, Nadex Binary Options do provide a degree of flexibility that could be useful during uncertain times. Binary options allow investors to answer yes or no to the following question: will the price of an asset increase or not?
The mechanics of these trading options are such that the investor isn’t purchasing the underlying asset. Instead, they’re speculating on price movements. This means it’s possible to make money when the value of an asset increases or decreases.
An Ability to Pivot is Essential in 2021
More importantly, it offers a degree of flexibility. Current political, economic, and health issues make the S&P 500 tougher to predict. Of course, we can look at last year’s data and try to ascertain where losses and gains will occur.
For example, we know the S&P 500’s IT sector increased by 89.8% in 2020 after rebounding 41.2% in the latter part of the year. Communication gained 65.7%, while healthcare grew by 52.9%. In simple terms, we can see which parts of the S&P 500 made improvements in 2020.
We also know why the market crashed and how it rebounded. However, we still can’t say for certain what will happen in 2021. The forecast from Goldman Sachs may be right. However, nobody could have predicted COVID-19.
Therefore, the optimal strategy in the coming months is vigilance. Binary options make it easier to pivot in volatile conditions, though, this isn’t the only way to trade. However, it’s certainly a strategy worth considering in the current financial climate.