Investment Outlook for 2021: Vaccine Hopes, Market Rally, and Potential Challenges
Summary: Discover the impact of the pandemic on investments in 2020 and predictions for the future. Find out how diversification and asset allocation strategies play a role.
Thankfully 2020 is over. I hope you and your family made it through unscathed. I have been working from home at our place in S Dartmouth most of the year. It has more room than our place in Boston, and social distancing is more manageable.
I have done some Zoom meetings, but I miss in-person meetings with clients. Here’s hoping that, by mid-2021, the vaccine will have gotten us to herd immunity, and we can get back to our everyday lives.
It has been a confounding year for investors. The stock market started 2020 strong, then the virus hit. At its worst in March, it was down almost 40%.
The U.S. bond market had another excellent year as interest rates dropped during the pandemic. The Barclays Aggregate Bond Index is up 7.3% for the year.
The worse the pandemic looked, the more gold rallied. But as more vaccines roll out and things look better, gold prices continue to fall.
International stocks and bonds have also provided good returns in 2020. Overseas stocks, much like here in the States, benefited from enormous support from their governments and central banks and have rallied as hope for vaccines grows.
International bonds got hurt early in the pandemic as investors flocked to the U.S. dollar. Still, as the year went along, the dollar began weakening against most currencies, providing a tailwind for foreign investments.
So, the good news is that, amid a horrendous pandemic, most investors saw positive returns for their portfolios. The bad news is that this has driven further inequality that is becoming ingrained in the country. It has also led almost all assets to be priced for perfection.
If the economy continues to rebound with all this money injected into it, interest rates should rise and bond prices fall, causing investors with bond-heavy portfolios to see losses.
However, if the virus mutates or not enough people get vaccinated, and the economy slows, stocks priced to perfection could fall dramatically.
Some, including former Morgan Stanley Chief Economist Stephen Roach, predict a continued fall of the U.S. dollar, benefiting foreign stocks and bonds.
My prediction is that it will be more difficult for both U.S. stocks and bonds to go up in the coming years. Either the economy will recover and push interest rates higher and bond prices lower or we will experience a double-dip recession with falling stock prices.
*Diversification, rebalancing, and asset allocation strategies do not assure a profit or protect against loss.
 Landsman, Stephanie, “Virus surge is leading to a double-dip recession and dollar crash, economist Stephen Roach warns.” CNBC, Nov 30, 2020, https://www.cnbc.com/2020/11/30/virus-is-leading-to-double-dip-recession-dollar-crash-stephen-roach.html
These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third party sites should not be considered an endorsement of content, which we cannot verify completeness or accuracy of.
Financial Advisor Tim Hayes
I’ve held an industry securities registration for 30+ years and am subject to SEC and FINRA oversight.
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Tim has offices in Boston and South Dartmouth, Massachusetts. He’s licensed to handle securities in 8 states: Massachusetts, Rhode Island, New Hampshire, New York, New Jersey, Connecticut, Maine, and Florida.