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2021 Market Outlook

2021 Market Outlook

By Andrea Bereznak

Anyone who says they know precisely what will happen in the financial markets in the future is pulling your leg. Don’t fall for it. Case in point: nearly every analysts’ forecasts for 2020 were soundly blasted out of the water when COVID-19 hit. 

Even without a crystal ball though, there are themes, short and long-term trends that do lend insight and can help guide portfolio adjustments over time. 

Pandemic & Economic Recovery

Much of the remaining vacuum in the economy caused by the COVID-19 induced economic shutdown in 2020 lies within industries that cannot operate within a pandemic environment. The approval of multiple vaccines and their distribution this year should end the pandemic nature of the virus in 2021. 

After a dramatic fall in 2nd quarter GDP and swift economic bounce in the 3rd quarter, 4th quarter numbers could be relatively good when they are published. There may be slow down again in the 1st quarter of 2021 due to the previous lapse in CARES Act support, increased COVID cases through the holiday season, and further state and local government layoffs. That said, pent up demand from consumers largely stuck at home for the past year could produce a surge in economic activity as people return to a new normal in a post-vaccine economy the later part of this year and into the beginning of 2022. Don’t forget that personal finances for many household are actually quite strong after the quick stock market recovery the second part of this year. 

Investing Implications

With clear indication from the Federal Reserve that target interest rates will remain low perhaps for next several years, finding return in the fixed income markets will continue to remain difficult. Opportunities exist in emerging market debt and some high yield areas but remember that higher bond yields are generally priced to compensate for higher risk. Don’t reach for return if your risk profile doesn’t support it. High quality core bonds still can provide value by steadying a portfolio, even if they do not add in any significant way to performance return. 

Risk assets like stocks should continue to be able to do well over 2021. Federal fiscal policy support, low interest rates, and projected corporate earnings year over year growth all provide reason for continued demand in equities. Be aware of how the environment has changed since a year ago. Due to the spectacular recent performance of high growth, technology-oriented companies, not only are these companies trading at expensive price to earnings ratios, but their expansion has led to significant concentration within the publicly traded U.S. stock market. While some technology and growth companies certainly still have strong balance sheets and room to continue, finding a balance with value-oriented stocks and an international stock allocation are prudent risk-diversifying strategies for many investors. 

After two incredible years in the stock market for 2019 and 2020, tempering return expectations for next few years may be a realistic mindset. Markets and economies exist in equilibrium over time, and right now we seem to be in somewhat of an imbalance based on the expensive valuations that have arisen over the past two years. 

Overall, maintaining a wider perspective is important. Significant events occur every year that might cause an investor pause or reason for optimism. Work with your financial advisor to determine the appropriate investment mix and risk for your personal long-term situation, and you needn’t worry about the occasional potholes along the road to your goals.* 

If you or someone you know has questions about the right moves for your specific situation, call us at (480) 507-2425. We would be happy to provide a complimentary professional review of your portfolio. 

The content in this article was prepared by the article’s author. Cetera Advisor Networks, LLC does not endorse its content, and the views expressed may not necessarily reflect those held by Cetera Advisor Networks, LLC. 

*Research for this blog post was obtained from multiple sources, including JP Morgan Market Insights.