How To Not Miss Out on the Next Big Investing Trend

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The whole point of investing is to make money. Over the long run, investments such as housing and the stock market have proven to be money-making options. Unfortunately, over the short run, both of these investments — along with countless others — are unpredictable, and in some cases, they can post tremendous losses.

While investing regularly over the long run is still the best option for generating wealth, if you can jump in ahead of a big investing trend, you’ll be that much better off.

Here are some signs that an investment trend may be picking up steam — along with some warning signs about when it might be time to get out.

Evaluate the Macroeconomic Environment

At the end of the day, the macroeconomic environment has a major effect on the stock market as a whole, as well as its individual components. When interest rates rise from low levels, for example, industries such as banking and finance actually perform better, as they are able to lend money at higher rates.

Coming out of a recession, small-cap stocks often outperform large-cap stocks, as they are able to post faster growth rates than their larger brethren. Late in an economic cycle, stocks such as energy and utilities often outperform, as growth rates at economically sensitive companies begin to slow.

Understanding where the American economy is in terms of inflation, interest rates, economic expansion or contraction can help keep you ahead of the next investing trend. 

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Listen To What the Fed Says

The age-old Wall Street mantra that “you can’t fight the Fed” still holds true today. The Federal Reserve controls monetary policy in the U.S., and what the Fed says and does holds tremendous sway over how markets perform.

From 2019 to 2021, for example, the Fed added immense amounts of liquidity to the market, ultimately dropping the Fed Funds rate to essentially 0%. In those three years, the market responded explosively, returning 28.88%, 16.26% and 26.89%, respectively.

But while the Fed can create boom times in the market with its policy, it also can act as an albatross across its neck. In late 2021, for example, the Fed telegraphed that it would have to start tightening interest rates for the first time in years. Not surprisingly, the markets sold off in late 2021 and into 2022, with high-flying growth names taking the biggest hits. In 2022, stocks fell into a bear market, with the S&P 500 finishing the year down 19.44%. If you watch and listen to the Fed closely, you can anticipate how certain sectors of the market — and the market as a whole — may react. 

Watch For Government Legislation

Just like the Fed can move markets, so too can legislation coming out of Capitol Hill. Laws that funnel money to certain industries can lift companies operating in those spaces, while laws that pose restrictions on others can slow their growth and hit their stock prices.

It pays to follow what legislation is under debate in Congress so you can be among the first to know what type of market-moving bills may be signed into law.

Beware of Speculative Trends

While getting ahead of major market trends can help create long-term wealth, many investors prefer instead to dabble in highly speculative trends in search of a quick buck. In 2020 and 2021, for example, meme stocks caught the attention of even the mainstream press — GameStop jumped 400% in a single week and AMC Entertainment popped nearly 1,200% in 2021.

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But you have to be extremely nimble and lucky to not only earn gains in these types of bubble stocks but also to hold onto them. Investors who bought in at GameStop’s peak, thinking that the buying would never end, for example, are now sitting on losses of about 75%.

If you’re looking to get ahead of the next big investing trend, don’t confuse speculation with analysis. While you can gamble your speculative money on high-flying names touted on online message boards, if you’re looking to create serious wealth over the long term, do your homework on current market conditions, legislative trends, the position of the Fed and the specifics of individual companies.

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