Worried about another recession? Here’s what the stock market is predicting for 2021
But markets have since staged a stunning turnaround and reclaimed record highs, defying the doomsayers despite a backdrop of historic job losses, bankruptcies and shrinking corporate profits. The market was driven higher by Big Tech stocks as trillions of dollars in stimulus from the Federal Reserve and Congress propped up an economy gripped by recession.
It’s been a year of fear for many Americans: The worst global pandemic in a century has taken more than 300,000 lives, battered the U.S. economy and propelled the stock market into the fastest crash in history.
Why? The economy is expected to continue recovering with a vaccine on its way. And Wall Street professionals expect another good year for investors.
So while the COVID-19 death toll is staggering, the stock market is telling Americans to be optimistic about 2021, experts say.
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“The stock market is the only place where things go on sale and people leave screaming,” says Ryan Detrick, chief market strategist at LPL Financial, an independent broker-dealer. “Now that we’re back at records, it’s a harsh reminder to people that the stock market is a forward-looking mechanism and sees better times ahead.”
That sort of optimism was hard to imagine after trillions of dollars in market value was wiped out in March, when stocks plunged 34% a month after hitting record highs. But the head-spinning crash also left investors with beaten-down stocks at bargain prices.
Following the aftermath of the Great Recession, he was saddled with student debt from his MBA program. It was a scary time for him, he says, because he was worried about making ends meet after his job offer got pushed back for five months.
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Jimmy J. Tran, 40, is one of those Americans who jumped at the opportunity to scoop up stocks in the downturn after learning from past mistakes.
When the pandemic hit in the spring, he was laid off from his job at a commercial real estate firm. He decided to pursue other passions. Now, Tran is a full-time investor and small business owner at Code Ninjas in Dallas, a coding franchise set to open in early 2021 where children learn STEM skills.
After that experience, he was on a mission to become financially independent. Over the past decade, he started chipping away at his student loans and began investing more in real estate to grow his personal wealth.
“I was preparing, saving, investing for years to accumulate a nest egg,” Tran says. “The key is to keep your personal balance sheet strong so that you’ll be in a position to invest when the market implodes. When prices are low, buy more.”
“My advice for anyone working in corporate America is to always have other interests or side hustles that they can pursue if they suddenly don’t have a job,” says Tran, who used the market drop earlier this year as an opportunity to max out his IRA contributions for himself and his wife for 2019 and 2020.
Still, the economic expansion that began in the summer may have years to run, experts say, and that typically fuels further stock gains, helped in part by strong corporate profit growth. The length of expansions has averaged 5.3 years, according to LPL Financial, which anticipates a more gradual recovery ahead after stocks snapped back this year following the sharp sell-off in March.
Unloved bull markets
Not everyone was able to take advantage of the market drop during the economic recovery, which has widened the divide between the haves and have-nots. Some remain fearful about the trajectory of the economy as unemployment remains historically elevated and COVID-19 cases spike heading into the winter, threatening further business closures.
The recovery’s current phase in some ways mirrors the pessimistic attitude of investors in 2009 and 2010 following the aftermath of the Great Recession, according to Michael Antonelli, market strategist at Baird, a financial services company. In the short run, it’s hard for people to grasp that the market is influenced by whether things are getting better over the next six to 12 months, not by daily negative headlines, he said.
Early stages of a bull market
The first phase of this bull market, which typically delivers the strongest returns, is likely over, experts say. In the next phase, SunTrust Private Wealth Management expects positive but moderating returns, sustained by the improved economy and a rebound in corporate earnings. The average bull market has gained a cumulative 179% and lasted almost six years, versus the current rise of about 65% over the past nine months, according to the firm.
Health and wellness ahead of finances
The pandemic has put increased attention on Americans’ health at the expense of their financial stability, according to a new study. That threatens to prevent households from building their nest eggs in the early stages of a new bull market, a critical period for long-term investors seeking to boost retirement funds.
“After you experience a financial trauma like a stock-market crash, a recession or high unemployment, a lot of people get stuck in the mindset that things aren’t as good as the stock market thinks, so they wait for the all-clear before investing,” Antonelli says. “I worry that people are falling back into that mindset now.”
It’s a troubling sign because it means that Americans are more likely to put together a financial plan after a market crash, rather than before one, says Aimee Johnson, vice president of Advanced Markets and Solutions, Allianz Life.
Only 13% of Americans are including financial planning as a resolution in 2021 – an 11-year low, according to the annual