Well, 2020 was certainly a year of surprises. Many investors believed that the onset of the coronavirus pandemic would result in (at least) a year of severe haemorrhaging for ASX shares. That, of course, did take place back in March and April. But ASX shares quickly rebounded and ended up finishing the year essentially flat. That's a deal I'm sure most investors would have taken with both hands back in March.

Over in the United States, the reaction was even more positive. The S&P 500 Index (INDEXSP: .INX) was up more than 16% for 2020 despite America being arguably one of the hardest-hit countries around the world. In the latter half of 2020, things turned exuberant across these 2 markets. We had a number of 'winners' from the pandemic booking massive share price moves.

Take buy now, pay later (BNPL) pioneer Afterpay Ltd (ASX: APT). Afterpay appreciated more than 300% in 2020, driven by the shunning of cash that the pandemic brought forward, as well as several other tailwinds. These include its partnership with Chinese e-commerce giant Tencent Holdings, as well as a series of stellar earnings reports.

Over in the US we saw similar, if not more potent, trends. Growth stocks like Tesla Inc (NASDAQ: TSLA) and Square Inc (NASDAQ: SQ) exploded in value, driven by a cocktail of both sentiment and results. We also saw frenzied speculation in both 'vaccine stocks' like Moderna Inc (NASDAQ: MRNA), and 'pandemic losers' like Hertz Global Holdings Inc and Carnival Corp (NYSE: CCL) in almost equal measure. IPOs like AirBnb Inc (NASDAQ: ABNB) saw stock prices double on initial trading.

2021: bubble or boom?

Such behaviour is often described as the early signs of a stock market bubble. So is that what 2021 might eventually bring us?

According to reporting in the Australian Financial Review (AFR), one investor is warning that we are in a bubble "that will eventually burst". That investor is Roger Bootle, chair of Capital Economics. Mr Bootle quotes another legendary investor, Jeremy Grantham, who has recently warned investors of "bubble-like conditions", calling the current state of the US markets "more overvalued that the eve of the great crash of 1929".

Bootle agrees with Grantham that "while the economy has floundered, the share market has continued moving upwards so that it is now far higher than it was before the pandemic hit".

Pop?

So when will this bubble burst? Well, that's the $64 trillion question. Like many commentators, Bootle says that the emergence of inflation, which will result in interest rates finally rising above zero, is likely to be the catalyst. But Bootle points out that Grantham stated that "investors are playing chicken with interest rates".

Even so, Bootle has hypothesised that central banks around the world might wait for inflation to pick up substantially before raising said rates:

I suppose that governments and central banks would initially try to take other measures to restrain inflation in the hope that they could avoid raising interest rates. But in the end this would not succeed. At some point in the future there lies not only an upsurge in inflation but also an increase in real interest rates, feeding through into bond yields. As and when this happens, it would undermine equity valuations.

He says that this initial stage will give asset prices (like ASX shares) an even bigger boost before the inevitable rise in rates brings things back to earth. That might or might not happen in 2021, but Bootle is pretty confident it's a 'when', not an 'if'.

Not such a Happy New Year from this commentator!

The post Will the ASX see a share market bubble in 2021? appeared first on The Motley Fool Australia.

While Australia looks to have COVID-19 almost under control, with Victoria emerging from the strictest lockdown conditions over the coming weeks, much of the rest of the world is facing sweeping second and third waves of infection.

Case numbers are spiralling across most of Europe, the United States, India and Japan… to name a few.

Aside from the tragic loss of life this portends, investors are increasingly concerned about the potential for new rounds of lockdown measures in some of the world's biggest economies. Measures that will extend their domestic recessions and almost certainly push a return to international travel further down the timeline.

Add in the dawning reality that global governments' virtual blank cheque stimulus measures can't continue indefinitely, and we have a fair picture of why share prices have been retracing in September.

However, as we'll have a look at shortly, selling quality shares now rather than buying them at a bargain could prove a costly mistake in the long-term.

But first, a quick look at some of the latest market moves.

Big tech shares buck the losing trend

Yesterday, overnight Aussie time, the major US and European share markets all lost ground.

The United Kingdom's FTSE 100 (INDEXFTSE: UKX) fell 3.8%. Year-to-date it's now down 24%.

In the US, the Dow Jones Industrial Average (INDEXDJX: .DJI) led the way lower, falling 1.8%. The Dow is also in the red for 2020, down 6%.

The broader Nasdaq Composite (INDEXNASDAQ: .IXIC) also slipped, closing down 0.1%. But the biggest 100 technology-oriented shares contained in the NASDAQ-100 (INDEXNASDAQ: NDX) bucked the losing tend, combining for a 0.4% gain.

Meanwhile the S&P/ASX 200 Index (ASX: XJO) is down 0.8% in early afternoon trading.

However, most ASX listed tech shares are heading the other way. The S&P/ASX All Technology Index (ASX: XTX) – which tracks 50 of Australia's leading and emerging technology shares – is up 1.3%.

And the Betashares Nasdaq 100 ETF (ASX: NDQ), which holds 100 of the biggest names in technology, is up 2.4%. While it's still down 10% from its 3 September highs, year-to-date the share price is up 19%.

The resilience of the big tech shares, despite what many call their "lofty valuations" won't come as a surprise to Seema Shah, the chief strategist at Principal Global Investors in London.

Here's an excerpt of what Shah revealed regarding the rise of technology shares on Bloomberg's What Goes Up podcast on 12 September:

[W]e may have increased our reliance, and we may pull back some of that dependence, on technology. But a fundamental core of that is here to stay. And also in an environment where there is so much uncertainty, we still don't know what's around the corner, you still need companies that have got those really strong balance sheets and positive cash flow. And those mega-cap tech stocks meet that criteria.

Indeed, yesterday Apple Inc. (NASDAQ: AAPL), to pick the biggest of the mega-cap shares, gained 3%. Apple's share price is still down 18% from its 1 September all-time highs. But with the share price up 47% for the year, buy-to-hold investors won't have anything to complain about.

No shortage of opportunities

It's not just tech shares offering great opportunities to patient investors.

As the Australian Financial Review reports, "some fund managers are using the sell-off to buy into companies that will benefit from an economic recovery as the number of COVID-19 cases falls."

Like UniSuper chief investment officer John Pearce, who says of the recent share market pullback:

It's providing an opportunity and there's still plenty of opportunities there. If you want to back the reopening trade, there's no shortage of opportunities in tourism, travel and property. A number of stocks are still reasonably well off their highs, and if we get a vaccine and with interest rates at zero, there's no reason those stocks can't reclaim those highs.

Let's look at 3 of those opportunities now. Shares that may continue to lag as investors focus on short term fears of second waves of infection but that could easily regain their former highs once domestic and international borders reopen for regular travel.

First up, cruise line behemoth Carnival Corp (NYSE: CCL). Carnival's share price fell almost 7% yesterday on those shorter-term fears. That puts the share price down 72% from its 17 January 2020 high. If Carnival's share price regains that level, it will represent a 257% gain from today's share price.

Second up, Sydney Airport Holdings Pty Ltd (ASX: SYD). Sydney Airport's share price is down 38% since 17 January. Investors who buy shares today would see a gain of 61% if Sydney Airport's share price revisits its January high.

Finally, there's Flight Centre Travel Group Ltd (ASX: FLT). The blue chip travel agency's share price is down 67% from 15 January. If Flight Centre's share price regains its 2020 high, that would be a gain of 203% from today's prices.

Now there's no reason these shares couldn't head lower from here over the short term. But if you have a long term investment horizon, these 3 are just some of the opportunities to potentially bank some hefty gains down the road.

The post Why you should look beyond the second wave to the blue investment skies beyond appeared first on The Motley Fool Australia.

Oil prices have tumbled due to weak demand and the Russia versus Saudi Arabia supply war. Parts of my second industry to avoid are generally a strong beneficiary of weaker oil prices, as fuel is one of its greatest inputs. However, with the one-two punch of COVID-19, this industry has an uncertain short term.

Travel

The travel industry is very broad. There are online aggregators like Booking Holdings Inc (NASDAQ: BKNG); cruise lines like Carnival Corp. (NYSE: CCL); corporate and consumer-facing travel agents like Corporate Travel Management Ltd (ASX: CTD) or Webjet Limited (ASX: WEB); hotels; and, airlines like Qantas Airways Limited (ASX: QAN) among other parts of the sector.

Each part of the travel industry has been severely impacted by the COVID-19 pandemic, but this article will focus on the ASX airlines.

Airlines

There is no doubt that air travel will exist in the future. But right now is an extremely tough time for the industry. Qantas has slashed services for the next 6 months. As a result, Qantas and Jetstar have temporarily stood down two-thirds of their 30,000 employees from late March until at least the end of May. During this time, the company has announced that stood down workers cannot get sick leave. International flights are changing and the company is deferring the payment of its interim dividend from 9 April until 1 September.

This is a stunning example of the impact that COVID-19 and the containment measures put in place to slow the spread of the virus are having on both domestic and international travel. Even if the spread of the virus is contained in the next few months, airlines could lose out on some international travel associated with the Northern Hemisphere summer.

Similar to the previously discussed oil companies, a strong balance sheet is imperative to surviving this rut and thriving on the other side.

Additionally, with so many people and organisations experiencing working remotely for the first time, I don't expect our ways of working to completely return to how they were. Improvements in technology are allowing for quality work to be performed from across the globe, and this could see a long term reduction in business travel.

A Foolish thought

If the valuations in the travel industry are too attractive for you to ignore, make sure you have a long time horizon, diversify and invest with cash you won't need for the next few years.

The quicker we beat COVID-19, the quicker our lives go back to normal. Following the government's directives for social isolation and the like not only helps health outcomes, but will help the economy and your businesses get back on the path to growth.

Tomorrow I'll be sharing my final industry to avoid in 2020.

The post Another ASX industry to avoid in 2020 appeared first on The Motley Fool Australia.