Reasons to be Optimistic and Pessimistic for the 2021 Market

 

What’s in store for the market in 2021? No one knows for sure. However, we can look at where things are now and what’s happened in the past to get an idea on what may take place.

We’ve highlighted some reasons to be optimistic (bullish) and some other reasons to be pessimistic (bearish) on this year’s market.

Reasons to be optimistic:

 

1. It appears low interest rates are here to stay for the foreseeable future. Low long-term interest rates temper equity market risk. Fixed-income returns are expected to be lower, which in turn makes equities more appealing and creates a “buffer.”

 

2. The $900 billion relief package just passed and should help the economy. Second rounds of paycheck protection have been sent out which will help businesses stay afloat.

 

3. The vaccine is rolling out, and soon the economy could open back up.

 

4. There is a $684 billion gap between real and potential GDP. IF the economy does open, there is potential.

 

5. The middle and upper class have been able to save a lot of money. The savings rate is high. This offers an equity buffer and possible influx into the market. Should the market dip, those sitting on cash may buy in (everyone wants to buy low!) and offer some downside protection.

 

Reasons to be Pessimistic:

 

1. The Price to Earnings Ratio of the market is incredibly high. The S&P 500 is sitting at just under 39, and 15-17 is the average. This implies the market is overbought.

 

2. The market is approaching a long-term trend-line ceiling dating back to 1980. For those who like technical analysis, these trend lines are often hard to break through. If they are broken, it can mean the market will continue to climb. However, they usually imply resistance.

 

3. The CNN Fear & Greed Index is showing Greed and leaning toward extreme greed, making markets more susceptible to negative news. Lately, this have not been holding true, and markets have continued to climb despite negative news. This typically implies euphoria, where markets are trading “outside reality.” When this happens, there is often some form of correction coming.

 

No matter what happens, it’ important that you understand your investment risk, time horizon, and overall financial plan. Revisiting your portfolio and what a market downturn or uptick will mean for your retirement and other goals is important.

 

Reach out to us here at Campbell Financial Services for help with retirement planning and investment management.

 

 

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Past performance does not guarantee future results. Investing involves risk, including loss of principal.