2021 Market Outlook
2020 was a crazy year on many fronts with the stock market no exception. As we turn the page, what’s in store for 2021? According to Mark DiOrio, Brookstone’s Chief Investment Officer, look for the markets to do well at least into the third quarter. Economists believe that we are still in a secular or long-term bull market that began in 2012. Here’s why:
- Interest rates remain at historic lows. As long as rates stay so low, the price of stocks can remain higher than historical norms.
- Second, companies continue to buy back shares of their own stock, which often helps the price of their stock to climb.
- Third is what’s being called the autonomy economy, backed by destructive innovation. This supports continued improvements in economic productivity. What’s this mean? In layman’s terms, technology continues to change the way businesses operate and the way we live our lives. Remember the flip-phone? Now we have a computer in our pocket.
Don’t count out market volatility. It’s still alive and well. A sharp decline in early 2020 was a cyclical or short-term bear market within an ongoing bull market similar to what we had during the last three months of 2018.
As for the market itself, the level at which growth stocks have outperformed value stocks is sitting at an extreme level. Likewise, the relative performance of U.S. stocks compared to international stocks is also at a major extreme. As the market became more concentrated in the largest stocks, market volatility also increased. This could impact the markets this year.
Most Wall Street strategists put out a yearly target for the S&P 500. We think outlining ranges makes more sense. The ranges are used as a guide to manage portfolios and manage expectations… but then again, nobody knows what the future holds. With the S&P sitting around 3,750, DiOrio cited an estimated range of 3,234 on the downside and up to 4,244 on the upside. Seems like a lot of wiggle room in that estimate.
So… what does all this tell us? To me, it says that most likely the market will do well for at least the first half of the year although we may continue to see a rotation of stocks en vogue vs. those losing some luster. We will continue to closely monitor our portfolios and make changes where it seems timely and appropriate.