1/21/2021 11:00:00 PM

10 factors shaping markets in 2021

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A bonanza year could be on the cards for markets, but what’s driving it? Pie Funds CEO and Founder Mike Taylor explains.

This year has kicked off in a not-so-quiet fashion. If you thought that 2020 was going to cap off the end of global volatility, think again, because fundamentally nothing has changed except the date. 

So far this year we have had:

  • The attempted revolution by Donald Trump supporters storming the Capitol in Washington 
  • Bitcoin’s gone vertical, with it valued at US$39,000 the time of writing 
  • Tesla is now worth more than all of the world’s major car makers combined
  • Covid-19 is still running rampant in the US and Europe
  • The Democrats are back in control

Bonanza on the cards

So how do I think 2021 is shaping up? With the available data, it looks set to be a bonanza. How much of this is priced into markets remains to be seen. However, the following factors are still very supportive of shares:

1. TINA (There Is No Alternative) to shares in my opinion. Bitcoin’s surge might be tempting but it’s a speculative bubble, higher risk and highly volatile. 

2. Interest rates are still at record lows with Central Banks committed to keeping them low for at least another 2-3 years. This has significantly affected returns on term deposits.

3. Brexit has been resolved. With this significant uncertainty removed, we would expect valuations in the UK to normalise and capital and investment that has been diverted or deferred away from the UK to now be allocated, setting the scene for a strong rebound post Covid-19.

4. The adults are back in charge of the White House, with US President-elect Joe Biden expected to take office in late January. Trump’s foreign policy, unpredictable, and often inflammatory rhetoric has given investors a number of headaches in the last four years. In particular, the Trade War with China was very damaging for markets in the lead-up to Covid-19.

5. Fiscal stimulus in the US will run into the trillions. The Democrats are back in control which means we can expect a much larger stimulus package than currently approved. The stimulus proposed by Biden calls for a $1.9 trillion Covid-relief plan, which includes $2,000 cheques for all Americans and significant infrastructure and green energy spend. There’s also a pledge to vaccinate 100m Americans within his first 100 days of office. These are all positives for investors.

6. Pent-up demand will hit like a sledgehammer killing an ant from mid-2021 as lockdowns finish, vaccinations are well advanced and the northern hemisphere summer gets everyone back out and about. Sectors like travel, tourism, restaurants and entertainment will all benefit as the world emerges from Covid and restrictions are relaxed.

7. Household savings increased dramatically in 2020 as people stayed at home and the governments handed out money. Many households have built up a savings buffer as wealth has transferred from government balance sheets to household balances sheets because consumers have not spent (or been unable to spend) all the relief packages. As these savings are wound down, this money will flow back into the economy.

8. Sentiment has turned positive.

9. Speculation is already evident in the market. When speculation is evident this means we are well and truly in a bull market (where share prices are rising, encouraging buying) and instead of worrying about it, ride the bull while it’s there. Being fully invested is the best place to be 90% of the time. Don’t try and guess the other 10%.

10. Buy value over growth. All the boring stuff. As growth names get more expensive, value looks cheaper and cheaper by comparison.

You will always make most of your money buying at the bottom. I hear you can’t give away apartments in NYC or London these days, but it feels like this equity bull has further to run in 2021.

To download our product disclosure statements, go to www.piefunds.co.nz.  Past performance is not an indicator for future returns. This information is general in nature only. You may wish to discuss with an expert before relying on it.