Kiplinger’s: What do you see ahead for 2021?
Link: To talk about 2021, you have to put it in the context of 2020. We have to deal with the increase of COVID cases versus progress with vaccines and with testing. The time line is uncertain for the next round of fiscal stimulus, but the fact that we need it is absolutely certain. All of this is against the backdrop of way-better-than-expected corporate earnings. So, companies are dealing with all these uncertainties, but sometimes investors cannot, and this is why you have fluctuations in the market.SEE MORE Kiplinger’s Economic Outlooks
Where is the economy headed? The economy has been uneven, and that will continue until we get a vaccine—which is why the Pfizer news of a successful trial is so important. Pockets have done well—housing, autos and manufacturing have seen a V-shaped recovery. But there’s a lot of bad: travel, leisure and hospitality, small and medium-size businesses closing every day, 10 million people unemployed. It’s important for the good pieces to pick up the slack until we get another stimulus package. You could potentially see gross domestic product growth of 4% to 5% in 2021.
How will the market adjust to a new president? I think the market likes a Biden win with a split Congress because it’s gridlock—you don’t get many surprises. But research from Capital Group shows that over the past eight decades, in 18 of 19 presidential elections, no matter which party won, a hypothetical $10,000 investment made at the beginning of each election year would have gained in value over the next 10 years, and in 15 of those 10-year periods, it would have more than doubled. I don’t want to say the election is meaningless, but it really is less important than other fundamentals over the long term.SEE MORE The Best and Worst Presidents (According to the Stock Market)
What would you focus on? I have learned over my career that stocks follow profits, and if profits are going higher, stocks eventually will. Earnings are recovering nicely, which tells me that fiscal and monetary stimulus is doing its job. Next year we could see earnings growth of 30%-plus. Find good companies with high market