The story of 2020 and 2021 is (obviously) the virus. Simply speaking, the markets trade lower when the virus looks less contained and higher when it looks more contained. For this reason, and others stated below we are optimistic on stocks for 2021.
The vaccines currently available have about a 95% protection rate and their rollout has been going relatively smoothly. The government hopes to have the majority of the population vaccinated by summer.
Business and manufacturing sentiment are strong, and data suggests we are on a new cyclical upturn (as measured by corporate profits and cash flow). We should be at pre-Covid levels by late spring.
Job confidence is rising with food service and leisure jobs projected to return robustly in the second half of 2021.
Trade tensions will most likely ease, keeping a lid on inflation and enhancing consumer confidence.
US growth in GDP is projected to be between 4 and 6%.
Fiscal and monetary policy will remain loose, meaning there will be a large supply of cheap money, and treasury checks will be going out soon as a result of the latest stimulus package.
Conclusion:
For the stock market, we believe the risks to the economy in the form of evictions, restaurant and store closures, virus spikes, et cetera will be more than offset by the largest stimulus program in modern history (between Federal Reserve actions and congressional legislation). Even after this great run for stocks, valuations are still reasonable due to record low interest rates. Investments in bonds and cash simply don’t currently offer meaningful returns as they once did. Stocks have room to run.