I hope everyone enjoyed the holidays. As we turn the page, we have many things to look forward to and some challenges yet to be resolved. The good news is that, despite the resurgence of COVID, vaccinations are moving forward and we anticipate the severity of the pandemic to decelerate throughout the year. What this means is that the current economic recovery will have fewer headwinds, and with the potential for further federal stimulus, could even have some tailwinds. While we’re not completely out of the woods, there is in fact a lot to look forward to in 2021 as a semblance of normality returns.
While I won’t get into the politics of the past few weeks, and especially this week, I do want to point out that the stock market has not only held its gains into the end of 2020, but momentum has carried those gains further into the first week of the new year. This may be surprising to some given the events that have transpired this week. However, it makes complete sense if one considers, the now widely accepted belief, that further stimulus is coming. One thing the stock market likes is easy money. You’ll remember the cartoons and memes in 2008/09 of Ben Bernanke throwing money out of a helicopter. To a large extent that helped stabilize the financial markets in the wake of the financial crisis. This time around the amount of money dropped, as if from the sky, has been magnitudes larger and with much the same effect, the markets have gone appreciably higher. President-elect Biden said today in a press conference, among his first priorities is further stimulus that could reach into the trillions. This bodes well for both the economy and the stock market.
It is hard to know exactly what will happen this year, 2020 is the perfect example of that, but it is fun to speculate nonetheless. Along those lines, Byron Wien, Vice Chairman of Blackstone has done just that for 36 years. Harvest Financial Advisors does not endorse any of these predictions, however, I think it is fun to see what one prominent investor thinks. While I agree with some of these predictions, there are others I’m not so confident are right. Here are his ten top surprises for 2021:
- Former President Trump starts his own television network and plans his 2024 campaign. He hosts Vladimir Putin and draws more viewers than any television program in U.S. history.
- President Biden begins to restore a constructive diplomatic and trade relationship with China. China shares lead emerging markets higher.
- With the success of the vaccines, the U.S. returns to some form of “normal” by Memorial Day 2021. Proof of vaccination will be required before boarding airplanes, and attending theaters, movies, and sporting events. The Olympics are held in July with people in attendance.
- The Justice Department softens its case against Google and Facebook, persuaded by the argument that the consumer benefits from these services. The broad effort to break them up loses support.
- The economy develops momentum because of pent-up demand, growth exceeds 6%, and the unemployment rate falls to 5%. We begin the longest economic cycle in history.
- The Federal Reserve continues accommodative monetary policy. As long as growth exceeds inflation, deficits don’t seem to matter. Gold rallies and cryptocurrencies gain respect.
- With the return to normal, the demand for oil will increase and oil rises to $65/bbl. Energy stocks are among the best performers in 2021.
- The equity market broadens out from just technology. However, risk remains with a pullback in the first half. Cyclicals lead defensives, small caps beat large caps with big cap tech being a source of liquidity.
- The surge in economic growth causes the 10-year Treasury yield to rise to 2%. However, with a concomitant rise in inflation, real rates remain near zero. The Fed continues its bond purchase program in order to prevent higher rates that might otherwise choke off borrowing by consumers and businesses.
- The slide in the U.S. Dollar turns around. The strength of the U.S. economy attracts investors disenfranchised by the slow growth of Europe and Japan.
With that I harken in the start of what I believe will be a better year than 2020. I know I’m not going that far out on a limb, but now you know.
Bruce J. Mason, MBA