Upticks: 2021 Market Predictions
By Jake Falcon on December 30, 2020
2020 Was a year unlike any other, but everyone’s wondering what lies ahead for 2021. While it’s impossible to predict the future when it comes to the market, this week on Upticks, Cory joins Jake to discuss some possible expectations for the coming year.
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It’s interesting that 2020 ended the same way it began, with the stock market hovering around all-time highs. Of course, in between there was a historic crash, and March 2020 was the worst month in the market’s history. Thankfully, the Federal Reserve, the US Treasury and Congress took proactive steps—lowering interest rates, buying bonds, passing stimulus spending and more—that helped the market recovery. Americans shifting their spending from entertainment and travel to things like home improvement projects also helped both the economy and the stock market.
So, what lies ahead in 2021? It’s impossible to predict the stock market. If any of the gurus and pundits could accurately predict exactly what the stock market will do, they would be wealthy beyond imagination and likely hesitant to share any of their wisdom with the masses. With that in mind, here are two expectations Falcon Wealth Advisors Cory Bittner and I share for the upcoming year.
- The market will offer positive returns, but they may be lower than the average year
Historically, the stock market offers an average annual return of 8-9 percent, and returns were about 14 percent in 2020. While we expect another positive year for the market in 2021, we don’t expect returns of 14 percent and won’t be shocked if they don’t reach the average 8-9 percent. Why? With the market rising after the 2020 election, we believe some of 2021’s returns are actually arriving in late 2020. We also think the tech sector’s run of market dominance may be slowing down—though small cap and international stocks have the potential to do well, especially if the dollar is weakened following stimulus spending.
At Falcon Wealth Advisors, we will keep with our strategy of investing clients in individual stocks and bonds, so that they have more flexibility to weather some of 2021’s storms. And more than ever, we plan to invest our clients equally across a number of sectors. In particular, we want to make sure our clients are not overly invested in technology stocks and are invested in stocks that may do well during a Biden administration.
- Bond yields will increase
The 10-year US Treasury bond yield is still below one percent, but some have predicted it could rise in 2021. This development would be a good thing for people like Falcon Wealth Advisors clients who are invested in individual bonds. This news is not as welcome for investors who own bond mutual funds or bond ETFs. At Falcon Wealth Advisors, we believe the downsides of owning a bond fund outweigh their positives. If your advisor has you invested in a bond fund, please contact us today. We would be happy to sit down and share why we feel individual stocks and bonds are better vehicles to reach your goals.
We recently read results from a survey that queried 58 analysts on where they believe the 10-year US Treasury bond yield will be at the end of 2021. It’s currently at about 0.95%, and only four of the 58 analysts surveyed expect the yield to be higher than 1.5% at the end of 2021. Our bold prediction? We side with the four contrarians who believe the yield will reach 1.5% next year.
Why is this important for investors? When we buy bonds for clients, a higher yield means they will earn more interest on the bonds they’re buying. Higher yields are also an indicator of rising interest rates and optimism about the stock market and the overall economy. An old adage advises us to look at the bond market if we want to know what the stock market will do.
The importance of planning
At Falcon Wealth Advisors, we build potential stock market downturns into the financial plans of our clients, which relieves pressure to attempt to “time the market.” In 2021, we’re planning to begin sending all clients quarterly trade summaries and market outlooks as we continue to invest in individual stocks and bonds. If you would like to work with a transparent, proactive team of financial advisors and planners in 2021 and beyond, please contact Falcon Wealth Advisors today.
Clients choose to work with us to enhance their financial literacy and explain exactly what their financial plan mean to them.
-Jake Falcon, CRPC®
