On Christmas Day 2018, the market was at the lows of a correction that had seen the S&P 500 fall 17% in three weeks.
That correction was followed by a 30% rally in 2019, the best year for stocks since 1987.
And of course, in 2020 we saw a great start to the year, followed by a 34% one-month plunge, the fastest bear market in history.
Which was followed by the fastest bear market recovery in history, five months, instead of the average 27 months from bear market lows to new record highs.
I’m not going to lie to you and say I know what the market is going to do in 2021, no one does.
- according to JPMorgan, just 8% of 12-month stock returns are explained by fundamentals
What I can tell you is that there are three particular catalysts in 2021 that could make this another incredible year for stocks in general, but undervalued blue-chips in particular.
So here are there three reasons I’m cautiously optimistic that 2021 is going to be another wonderful year for the prudent long-term investor.
Reason 1: The Vaccines
18 months ago no human had ever had COVID-19. In just 10 months, the world’s scientists did something that was once considered impossible.
- sequenced the genome of the virus and had a safe and 96% effective vaccine ready within 10 months
- the previous record was mumps, 4 years to develop that vaccine
While there has been a lot of logistical hiccups in rolling out the vaccine so far, the success we’ve had has been impressive if you consider the miracle scientists pulled off last year.
- The US is #1 in absolute doses of vaccines administered so far
- AK is #1 in vaccinations at 13% of the population
- NV is #50 at 5%
- 1.16 million 7-day rolling average
- at this rate, 85% herd immunity will be reached on September 7th, 2021
- America’s 50,000 pharmacies alone have the potential to vaccinate 100 million per month if they had access to enough doses
- Globally 56 countries have begun vaccinations.
- 65.6 million doses so far
- 3.38 million 7-day rolling average
- at this rate, 85% global herd immunity will be achieved on September 10th, 2026
- 12 countries have vaccinated over 1 million people
- 2 have vaccinated over 10 million
- the US over 22 million
- yet it’s less than 1% of the global population
The largest logistical healthcare effort in human history is underway to speed up vaccinations.
- including an estimated 50 million people that will be hired to administer vaccines globally
- in every corner of the world
- health experts are cautiously optimistic that we can get to global herd immunity and end the pandemic by the end of 2023
- potentially into 2024 if logistical issues persist
The end of the pandemic is the ultimate bullish catalyst for stocks. While there remains a lot of progress to be made this year in 2022 on the vaccine front, I’m cautiously optimistic that the world’s heroic nerds will continue to come through for us as they have since the start of time.
Reason 2: The Strongest Economic Growth In 36 Years
President-elect Joe Biden’s rescue plan could have “significant impacts” on the economy in 2021 and dramatically boost GDP growth, according to JPMorgan’s chief global strategist, David Kelly.
The rescue plan Biden laid out last Thursday would cost roughly $1.9 trillion and include a round of $1,400 direct payments, $400 weekly federal unemployment benefits, and funding to support school reopenings and vaccinations, among other efforts. Biden said he wanted to push the plan through Congress as quickly as possible.
Using a simulation of the plan where $1.2 trillion is spent in 2021, Kelly estimated that it could boost nominal GDP growth to 11.4% year-over-year by the end of 2021. Most of that would come in the form of stronger real GDP growth. Kelly also said that the plan could cut the unemployment rate to below 5% by the end of 2021.
JPMorgan had estimated before Biden’s plan that nominal GDP was on track to rise by 6.4% year-over-year by the end of 2021.” – Business Insider (emphasis added)
JPMorgan is just one of several blue-chip economists who have become extremely bullish on 2021 growth.
- JPMorgan about 9.4% (real growth = nominal – inflation)
- Morgan Stanely, Goldman Sachs, and Bank of America: 6%
- Moody’s: 5% in 2021, 5% in 2022
Moody’s base case forecast is for the strongest economic growth since 1984. Other economists think growth could be even bigger since Moody’s baseline forecast is for $750 billion in stimulus and $1.5 trillion in total infrastructure spending.
What does that mean for the labor market?
In just four years Moody’s estimates that unemployment will have gone from a peak of almost 20% to about 4.3%. Given that 70% of the US economy is driven by consumer spending, this bodes well for corporate earnings growth in the first half of the 2020s.
In part two of this series, I’ll explain the most important catalyst for a potentially mind-blowing rally in 2021 (JPMorgan thinks potentially a 25% gain for stocks this year) but some of the best blue-chips you can buy to profit from what might be one of the best rallies in market history
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SPY shares were trading at $379.99 per share on Thursday morning, up $5.58 (+1.49%). Year-to-date, SPY has gained 1.63%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Adam Galas
Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...
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