The positive consensus among stock market forecasters for this year is disturbingly uniform.
It makes one think whether too many people are on one side of the boat and whether being on the other side might be wise.
But the macro picture remains compelling so perhaps the consensus will be correct. Enrique Abeyta certainly thinks so.
The editor of Empire Elite Trader and former hedge fund manager picked a lot of winners last year.
He says he’s never in his career seen global synchronized growth like the current environment.
Here are four reasons that’s positive for stocks:
My outlook for 2021 remains bullish.
I can break this market view down into four key pieces:
1. Interest rates remain low.
Inflation remains low, and global financial authorities likely want to keep the liquidity flowing given the ongoing recovery from COVID-19. This is unlikely to change in 2021.
2. Massive liquidity injections.
This is the same rationale as above. “M2” – the measure of money in the economy – due in large part to the U.S. Federal Reserve’s liquidity injection, is still moving higher:
Similar to the interest rate situation, it’s likely that global monetary authorities keep the money, or “oxygen”, flowing to the economy.
More money supply means more money to buy assets – whether precious metals, baseball cards, cars, real estate, bitcoin, or stocks.
As long as this liquidity flows, the bias in asset prices will likely be upward.
3. Global synchronized economic growth.
In my 25-plus years of looking at financial markets, I’ve never been as confident about economic growth as I am right now.
It just comes down to the math.
Think about it. The globe went into a hard lockdown from March to May. Restaurants, gyms, most retail stores – closed.
In 2021, many, if not most, of those will be open. That means more economic activity than the year before.
This will continue pretty much through 2022, and it will happen everywhere.
I’ve never seen global synchronized economic growth like this, and it’s a positive for the stock market.
4. Massive company-level earnings growth.
This works using the same math as above.
Think of airlines, for instance. Those that survive will see massive increases in revenue and earnings. So will casinos and restaurants.
All of this will drive overall earnings growth higher. And where earnings go, stocks follow.
Many investors will respond, “How much of this is priced in?”
As regular Empire Elite Trader readers know, I don’t think that’s necessarily how it works.
This sentiment implies that there’s some valuation at which the market is “correct.”
Stocks and markets go up when there are more enthusiastic buyers than sellers, and down when the sellers are more enthusiastic.
With low interest rates, lots of incremental money printing, and massive economic and earnings growth, the buyers will likely be much more enthusiastic.
Despite this bullish outlook, keep in mind that we will see corrections.
Remember, a correction is different than a bear market although it may not feel that way in the heat of it.
A “bear” market is a multiyear downdraft that takes the market down 30%, 50%, or even 70%. It’s likely that we’ll see another one, or possibly even more than one, of these in our lifetimes. Just not in 2021.
But with the kind of explosive upside we’re currently seeing this market – especially fueled by massive liquidity – don’t be surprised by a 30% “correction.”
In the type of market I envision, investors can see some of the best returns of their careers but the plan and how they trade that plan will be paramount.
Image source: www.axios.com
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