We are not even finished with January, and we’ve already experienced a whirlwind of activity. We have a new presidential administration, covid-19 vaccines are getting distributed, and the very bruised and beaten economy is showing some green shoots. Finally, there is a light at the end of the tunnel. So what does that mean for the 2021 stock market?
Once we have a few weeks of trading in the new year under our belt, I like to asses the year ahead. Here’s what I’m seeing.
What’s in store for the 2021 stock market
The stock market has been strong since coming off an amazing finish for 2020. Momentum is clearly in the bull’s favor. Indices and individual stocks are tagging new highs. Since the election last fall, markets are up 15% or more. That is impressive.
We wouldn’t have seen strong results in 2020 and into this year if it were not for the Federal Reserve. Fed policy drives liquidity, and liquidity drives the stock market.
The Fed’s accommodating monetary policy has transcended all other stimulus measures. While the Fed has been urging Congress to pass a very large fiscal stimulus bill (so the Fed can ease up on the gas), there is little they can do other than watch.
And the economy
Now let’s look at economic sectors. Housing has been very strong thanks to the Fed’s zero interest rate policy. Construction is starting to rumble, banks are seeing some profits and consumers are spending more. The technology and healthcare sectors also look great.
Unemployment remains terribly high, but with Janet Yellen and Jerome Powell working together, we won’t see a change in Fed policy until employment numbers improve.
Inflation is nascent, though by some measures it has been climbing. If it becomes a problem, the Fed will act.
Gold and silver are elevated but have not broken out.
Economies around the world are trying to make a comeback, and the US is outpacing most of them. With new leadership in Washington, I expect the 2021 stock market will maintain its buoyancy through the year.