Market Forecast 2021

The year 2020 was plagued by crises, most notably a volatile election year and the COVID-19 global pandemic. All of this turmoil has taken a brutal toll on the U.S. economy. New limits and policies imposed as a necessary reaction to the pandemic have resulted in job losses across all sectors and an estimated 60 percent of businesses being forced to close their doors. For those with their doors still open, nothing holds more promise than the start of a New Year. 2021 will seek to remedy the economic paralysis caused by the global pandemic.
At the start of 2020, the market saw an incredibly bullish January lending itself to a promising year. Then COVID-19 entered the scene and sent the market into a downward and volatile spiral. The DOW DOW -0.1% fell from record highs to record lows in a matter of weeks. Almost every sector was hit, especially small businesses and travel and hospitality. Two sectors that came out on top were technology and healthcare. Stocks and jobs in these fields remained secure. Many others however, were not as lucky.

The fallout from the pandemic affected American employment drastically. The U.S. Bureau of Labor Statistics reports that during April 2020, unemployment hit an unbelievable high of 14.7%. According to the BLS, the unemployment rate "increased by 10.3 percentage points to 14.7%...the highest rate and largest over-the-month increase in the history of the data."
The COVID-19 crisis also led to dramatic swings in household spending. Retail sales, which primarily tracks sales of consumer goods, declined 8.7 percent from February to March 2020, the largest month-to-month decrease since the Census Bureau started tracking the data.
In comparison to historical precedents, the economic downfall of 2020, as a result of the pandemic, was about three times as bad as the global financial crisis of 2008 in terms of GDP decline on an annual basis. It does not rival the Great Depression in the 1930s, where the output drop was sustained over a three to four-year period, and the unemployment rate went up to 25% in the US. It is however, the worst downturn we’ve had globally since the 30s. Given the now commonly used phrase “pandemic fatigue” and growing public disapproval and frustration with restrictions on businesses that we saw early on in the pandemic, public officials are now more reluctant to strictly intervene in people’s affairs fearing further economic impact.
Investors, much like the rest of the world, are searching for things to look forward to in 2021. The market has a split personality right now with certain sectors seeing fantastic growth while others are experiencing unprecedented downturns. What do experts advise for the coming months?
Domestic markets in developed countries cannot compare with the opportunities available in developing nations, especially those in Asian markets. Tech and manufacturing sectors are recovering more quickly than other industries. The pandemic and global lockdowns brought these sectors to the forefront of market discussion, forcing many business owners to jump online ahead of schedule.
Additionally, manufacturing ramped up to meet specific demands created by the crisis. Manufacturers such as 3M MMM -1% in the healthcare industry were especially overwhelmed trying to meet the demand for PPE that would allow essential businesses to safely remain open.
Tourism, retail, and hospitality sectors were hit hard. Las Vegas hotels and casinos, such as the Bellagio, had little to no revenue thanks to the pandemic forcing governments to issue stay at home orders. Movie giants like IMAX deflated overnight.
The performance of the U.S. fixed income market in 2021 will largely depend on the rate and extent of economic recovery that can be attained. The pandemic forced the Federal Reserve to take drastic measures. According to the Fed, "economic activity, employment, and inflation" will continue to be affected by the public health crisis. Expect long-term rates to rise as vaccinations get the pandemic under control.
2021 will see low-interest rates as the Federal Reserve commits to helping the nation recover. Unfortunately, this will weaken the dollar. This scenario is a boon especially to Asian markets and other developing nations. Asian bonds are also expected to lure investors with attractive yields and opportunities for high-quality investment.
Financial analysts suggest that now is a good time to invest in Asian equities. They are competitively priced compared to those in developed markets with a stronger growth outlook. Another plus in the Asian market corner is the RCEP (Regional Comprehensive Economic Partnership).
Three main areas of Technology, Sustainability, and Dual Circulation are driving China's economic recovery. Trade relations are looking up and the new Biden administration is expected to improve U.S. relations with China.