It feels negligent to write about the state of the economy or the investment markets without first pausing to acknowledge the current state of discord in the United States, says the Stearns Financial Group in a letter to clients.
Here are some excerpts, followed by some of their Top 10 2021 Predictions:
The chaos we experienced at our nation’s capital in early January along with the ongoing threats of armed protests around the country leading up to the inauguration are rivaled only by a second impeachment trial for our sitting president – the first in our history. As with the thwarted kidnapping plot surrounding the governor of Michigan last year, it seemed only a matter of time before something went (yet again) too far and shocked us all. Putting things into perspective, we know it is only an extremist subset of our population that are breaking the law. It is not “us.” And yet, this handful of people represent the state of affairs in our country and accordingly, injure us all. We hope and pray these unprecedented events will ultimately lead to a stronger democracy, a more civil society, and one in which the rule of law once again prevails.
We’ve shared many times that political and geo-political events impact investment markets only 4% of the time. In fact, in the last 100 years, only Hitler’s invasion of France has resulted in a stock market decline exceeding a 12-month period. Not the Holocaust. Not the dropping of the atomic bomb. Not the assassination of John F. Kennedy or the assassination of Martin Luther King. In fact, the civil unrest of 1967 and 1968, while heart-wrenching, still resulted in U.S. stock market returns that ended the year up 20% and 8%, respectively.
Stock market resiliency stems from the expectation that law and order will be sustained. We strongly believe this will be the case going forward and encourage our readers to recall that our democracy is resilient, albeit shaken. Our judicial system is intact. And a transition of power will occur, though sadly, it has been anything but peaceful.
Accordingly, many of our 2021 predictions are similar to those of 2020 even as our political (and psychological) worlds feel upended.
PREDICTION #1 - COVID-19 will be “under control” in the last half of 2021.
Infections and hospitalizations will be falling rapidly. An incredible three vaccines will be available in most areas. The U.S. and the world have invested heavily in multiple vaccine development options and logistics for manufacturing and distribution in response to what many experts describe as “only a level three event on a five scale.” The combination of those who have already had COVID-19 and those who are vaccinated will likely reach the 70% tipping point by mid-year. We still expect some bumps and setbacks in the greatest vaccine rollout in history and have already seen far too many state specific distribution issues. Some of our clients are now being asked to help with these efforts.
PREDICTION #2 - The aftermath of the pandemic will be lingering. Our health care system has been stressed, but also turbo-charged, by the pandemic.
While other pandemics in history have had much higher death rates (which, sadly, included large numbers of children), the numbers of people impacted by this pandemic is nevertheless historic. With that said, the means to end the pandemic have been equally historic.
Bad as it’s been (and is), we continue to learn weekly of new advancements in non-pandemic medical treatments as a result of what has and is being learned from pandemic research, testing and treatment.
Job losses resulting from the pandemic will mean millions of workers will need job re-training even faster than predicted. This appears to be a priority for the new administration.
Like the economy, K-12 education has been hard hit by the pandemic, with McKinsey and others predicting learning levels have been set back six months for the average student, and 10 months for lower income students. Our child development friends tell us it may take a year or two to get back to the normal learning curve, with students from lower income families (where pandemic job dislocation is the greatest) having the greatest challenges.
PREDICTION #3 - Corporate earnings should rebound well in 2021, and we expect stock prices to advance modestly.
The “digital pivot” of the economy has been intense, resulting in cost savings for many companies who are now holding meetings remotely, spending less on rents, and distance-training. As a result, many private and public companies have increased forecasted free cash flow by 10-20% going into 2021.
This may be offset, however, by the likelihood of higher corporate taxes in 2021. The negative impact of higher taxes varies from company to company with current estimates predicting an average decrease in earnings of 11-13%. With that said, the pandemic and the economy will likely take first priority, putting meaningful tax reform on the back burner for the time being.
The proposed $1.9 trillion dollar stimulus package is now more likely given the democrats’ control of all three branches of government. The vote margins are razor thin so time will tell if the new package which is focused on infrastructure and jobs will ultimately be smaller. We expect such a stimulus package to provide a tailwind for the economy and corporate earnings in some sectors.
And yes, this means the government debt will grow larger. This is unlikely to have any short-term impact on the 2021 forecasts, but the day of reckoning may have moved closer, perhaps five to seven years, than our last forecast of 9-11 years. More on the likely effects of this in future SFG communications.
In many cases, earnings will simply catch-up to the stretched valuations resulting from the pandemic in several sectors such as technology and home improvement. These catch-up periods where reality chases expectations are common – they are also, however, quite volatile.
If you are a journalist and would like to receive the remaining seven predications and/or to speak with one of the professionals at Stearns Financial Group, a professional wealth management firm located in North Carolina that manages over $1 Billion for clients across the nation, please contact Karen Embry and she will gladly assist: KarenEmbry@ImpactCommunications.org.
Stearns Financial Group is a group of investment professionals registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.
This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.
Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for related questions.
All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. Stearns Financial Group and Hightower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.
This document was created for informational purposes only; the opinions expressed are solely those of Stearns Financial Group and do not represent those of Hightower Advisors, LLC, or any of its affiliates.
Third-party links and references are provided solely to share social, cultural and educational information. Any reference in this post to any person, or organization, or activities, products, or services related to such person or organization, or any linkages from this post to the web site of another party, do not constitute or imply the endorsement, recommendation, or favoring of [Insert Team Name] or Hightower Advisors, LLC, or any of its affiliates, employees or contractors acting on its behalf. Hightower Advisors, LLC, does not guarantee the accuracy or safety of any linked site.
Story Ideas and Sources for Journalists
Looking for great sources? Story ideas? We've got them!
How About a Monthly Digest?