"The biggest debate about 2021 probably isn’t where the market is going. It’s how it gets there."

long exposure of stars

On The Markets

Turning The Page

2020 will be a year to forget for many who struggled with the pandemic’s devastating health and/or economic impact. Furthermore, human beings are social creatures and one could argue the isolation from family and friends was the worst part of last year. The impact on many businesses has been devastating, too, with normal activities having ground to a halt. As we enter 2021, the second wave of COVID-19 remains on the upswing with infection rates and deaths still rising in many locales. Offsetting these headwinds is the recent passage of another substantial fiscal stimulus and the distribution of several effective vaccines.

Unlike humans, financial markets don’t have feelings. Instead, they look ahead and discount what humans often can’t see. In fact, 2020 may go down as one of the best examples on record of such vision. In late February, markets quickly began to discount a brutal recession, with many stocks falling 50% or more in a month. Then, just as quickly, markets began to discount what would be the fastest recovery on record. The anticipation of this V-shaped recovery created what turned out to be one of the best years for equity markets and other financial assets, especially viewed from those dark days of March and April. Ironically, the risk/reward of investing is always greatest when fear is highest because valuation is cheapest.

So what will markets discount in 2021? Where could we be surprised and what investments are likely to offer the best opportunities? Unlike nine months ago, our V-shaped recovery for the economy and earnings is now a consensus view. As a result, many asset prices reflect this and our highest-conviction calls since early April—small caps, cyclicals and reopening beneficiaries—are looking pretty fair to fully valued. While growth stocks have underperformed during the past few months, they continue to do just fine, and look even more extended on valuation.

Michael Wilson
Chief Investment Officer
Chief US Equity Strategist

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2021 A Look Ahead

Incredible Insights On:

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Will stock market gains come from a strong economic recovery, or liquidity and low interest rates?

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Asset managers' expectations for stocks, interest rates and the economy.

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An expected rise in long-term interest rates could challenge tax-exempt bonds.

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What corporate travel managers are saying about in-person meetings and the state of business travel.

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