The momentum trade is one which has outperformed value investing in recent years. Many, including myself, believe this trend is likely to continue for some time to come. Highly accommodative central bank monetary policy has created a perfect storm for equities. With this environment likely to continue indefinitely, investors may be enticed to ride this wave of momentum into the sunset.
This, I believe, is a dangerous mentality. There are a few reasons why I hold this perspective. First, valuations are nearing 2000 levels. There is broad sentiment that valuations may remain heightened during this period of accommodative monetary policy. However, the idea that interest rates will remain at all-time lows is a slippery slope.
The stock price appreciation and growth that has been spurred by this volatility is impressive. But as with any stock appreciation run, all investors should take caution. The secular growth trends underpinning certain technology trends that were underway prior to the COVID-19 pandemic that have been accelerated by the pandemic are the trends I suggest investors pay close attention to right now.
Trends such as e-commerce, virtual conferencing, virtual healthcare, social media and other technologies aimed at allowing us to connect virtually are great places to look in this market. Growth-oriented investors, take note.
Invest wisely, my friends.
