10 Popular Investment Trends of 2021

By Inyoung Hwang – 5 minute read

Heading into 2021, many investors had a brighter outlook on the U.S. economy and financial markets. Both had staged impressive rebounds in 2020 after Covid-19 quarantine measures triggered wild volatility. Vaccine breakthroughs and stimulus checks further stoked optimism that the finances of many businesses and individuals were on the mend.

The benchmark S&P 500 Index is up 13% through June 10, 2021. However, outside stocks, wild volatility has been a feature of the cryptocurrency market, with Bitcoin surpassing $60,000 for the first time before losing almost half its value.

Such market moves show that even buzzy investments can bring about losses. Investors should always do their homework before buying into the latest market fads. Here’s a look at 10 popular investment trends of 2021.

1. Bets on a Rebounding Economy

Investors have wagered that airline, cruise line, and other transportation stocks, as well as travel website operators and dine-in restaurants, will benefit as widespread vaccinations in the U.S. allow businesses to reopen. Government stimulus packages and easy monetary policy from the Federal Reserve are also expected to prop up the economy and markets.

Plus, the Covid-19 shutdowns last year caused the personal savings rate to shoot up last year. It reached a high of 33.7% in April 2020 and remains above pre-pandemic levels. Americans had $1.6 trillion in excess savings at the beginning of the year, according to the government-backed mortgage firm Fannie Mae.

Such trends have caused economists and investors to assume consumers will get back into activities like travel, shopping and dining out.

2. Meme Stocks

In January 2021, shares of GameStop Inc. gained more than 1,600% after a group of retail investors banded together on Reddit to drive up prices of the video-game retailer. Enter “meme stocks”–a new phenomenon in stock markets.

Meme stocks are publicly traded companies that are generating high interest and share volume because of social-media channels. Nonprofessional investors trading from home typically gather on platforms like Reddit, Discord and Twitter and drum up popularity for such stocks.

However, interest in meme stocks differs from traditional investing in that business fundamentals are typically not the main drivers. Therefore, investors should realize that price moves may be volatile and catch them off guard.

3. Cryptocurrency Volatility

Mainstream investors first seemed to catch wind in 2017 of cryptocurrencies — digital money with no physical counterpart and zero backing from a government, unlike fiat currencies. An impressive rally eventually fizzled out the following year.

But cryptocurrencies like Bitcoin and Dogecoin experienced an even bigger surge in 2020. Younger investors trading on mobile phones while stuck at home turned to the crypto market for speculative bets or wagered on virtual coins and tokens as a store of value.

Even institutional investors have adopted cryptocurrencies to some degree. Some market observers say that crypto could remain popular with younger investors like millennials for some time. However, reports of greater regulation and criticism about the environmental costs have hurt the speculative fever. By June, prices of Bitcoin have yet to hit the highs from earlier in the year.

4. Are SPACs Still Hot?

Special purpose acquisition companies or SPACs became hot in 2020 as numerous famous figures started sponsoring them and companies sought alternatives to the traditional initial public offering. SPACs continued to pop up and raise record amounts of money in 2021.

Also known as black-check companies, here’s how SPACs work: shell companies go public on the stock market. They try to find a private business to buy within two years. If a target is found, the two entities merge with the private company going public through the process.

In 2021, investor enthusiasm for SPACs lost some steam amid regulatory scrutiny and lackluster performance by some deals. Still, many private companies are choosing the SPAC route to go public. Plus, how these companies perform and how regulators will oversee them will continue to be a focus for investors.

5. Retail Investor Trend

Retail investors started flocking to stock and options trades in a significant way in 2020. However, it was in 2021 when they became a major force that institutional investors couldn’t ignore.

Take GameStop, which everyday traders on the Reddit forum WallStreetBets targeted because hedge funds were shorting the stock. The 1,600% rally in the stock triggered painful losses for such professional investors.

Furthermore, the businesses of mobile brokerage firms–where these retail investors congregated to make trades–drew scrutiny, even bringing about a congressional hearing. Questions on how firms were able to offer zero commission trading through practices like payment for order flow and share lending could continue to be brought up by regulators, politicians, investors and market executives.

6. Inflation Wagers Pick Up

Trillions of dollars in stimulus money, along with rising consumer prices, have ignited a debate about whether inflation–long dormant since the 2008 financial crisis–will stage a comeback.

While some degree of inflation is normal and healthy, a rapid jump in the prices of goods could upend financial markets, which have become accustomed to a slow-growth environment. Most economists and investors don’t expect runaway inflation, but some have also been wary about the spectre of higher consumer prices.

More than $12 billion has flowed this year into exchanged-traded funds that invest in Treasury inflation-protected securities (TIPs) through the third week of April. Investors will likely continue to eye inflation gauges closely and monitor the Fed’s next steps.

7. Cybersecurity Focus

Two high-profile cyber attacks hit the U.S. in 2021: first on the Colonial Pipeline, a major gasoline conduit, and then on several meat processing plants. While cybersecurity breaches have ticked up in recent years, these two events and their widespread repercussions highlighted how such attacks are becoming a problem on a societal level.

ETFs that invest in cybersecurity stocks have traded sideways in 2021. But that’s coming off stellar performances last year when investors wagered that demand for web security would increase. It seems likely the cybersecurity industry will continue to be a focus for investors.

8. ESG Investing Movement

Financial advisors often tell clients to take their emotions out of investing. However, in recent years, a new breed of ethically-minded investors have become increasingly interested in putting their money where their values are.

A Bloomberg study estimated that Environmental, Social, and Governance (ESG) investments will hit $38 trillion globally by the end of this year and $53 trillion by 2025, a third of global assets under management.

In 2020, the deaths of George Floyd and Breonna Taylor set off protests and pronouncements about racial disparities in the U.S. Many American companies followed with statements on their commitment to racial justice. In 2021, shareholder advocacy groups are applying pressure on some companies to back their pledges with transparency on issues like racial pay gaps.

9. Hot Housing Market

Meanwhile, the housing market has been hot. Rock-bottom mortgage rates, a shortage of housing supply, and millennials who are entering the home-buying age have all led to houses selling in record time. In March, sales of new single-family homes soared to the highest level since 2006, according to data from the Census Bureau.

Even Manhattan, where real estate collapsed in 2020 as many families sought more space in the suburbs, saw a revival. Whether the rally continues will likely depend on the pace of economic growth as well as mortgage rates.

10. Commodities Markets

After years of muted returns, commodity prices have experienced a rebound in 2021. Investors wagered that rebounding economies would lead to more construction, greater energy usage, and food consumption. Tight supplies also boosted these markets.

Rising prices of oil, agriculture, lumber, as well as industrial and precious metals have sparked a debate about whether commodities are going through a new supercycle. Energy stocks were the best-performing sector in the U.S. stock market. If the Fed eases stimulus and demand from China cools, it could dampen the commodities rally, but some investors and Wall Street analysts remain bullish.

The Takeaway

The idea of putting hard-earned dollars into any investment—whether it’s trendy or traditional—can be daunting. Investors should be aware that while momentum can feed investment fads for long stretches of time, some market trends can become vulnerable because of frothy valuations and turn on a dime.

However, if investors still want to try their hand at choosing popular investment trends themselves, SoFi’s Active Investing platform makes it easy by making it easy to track their picks of stocks, ETFs and fractional shares. Investors can also make trades without incurring management fees from SoFi Invest®.