November 2020 is a month Australian share investors will long recall.
The All Ordinaries Index (ASX: XAO) posted its strongest gains in more than 32 years, going back all the way to March 1988.
And the 10.6% gain on the S&P/ASX 200 Index (ASX: XJO) delivered the best month for the top 200 ASX shares ever. A record which came despite the index slipping 2.9% from its monthly peak on 25 November.
Investors who sold their shareholdings during the pandemic-fuelled market mayhem earlier this year will have likely been watching those gains notch up as well. All too aware of the 0.6% annual rate they were earning from their term deposits. (Albeit, with far less risk.)
And it wasn't just ASX shares that enjoyed a stellar month.
United States shares rocketed higher too.
The S&P 500 Index (SP: .INX) gained 10.8% in November. And closed another 1.1% higher yesterday (overnight our time), setting a fresh record high on the first trading day of December.
Meanwhile, the tech-heavy Nasdaq Composite (NASDAQ: .IXIC), which also posted a new record high yesterday, gained 11.8% in November.
And all this as the virus continues to wreak havoc across much of the world and with the much-anticipated trillion-dollar US stimulus package having yet to pass.
So that was last month.
And while this month is off to a good start, with the ASX 200 up again in December so far (at the time of writing), the million-dollar question is can shares continue to march higher into 2021?
What's next for ASX 200 shares?
Aussie and US investors remain highly bullish on their outlook for share market performance in the year ahead.
A big shorter-term driver for equities could be seeing that stalled trillion-dollar US stimulus package finally given the stamp of approval.
A group of Democratic and Republican senators are pressing for a roughly US$900 billion (AU$1.2 trillion) spending package before the end of the year.
President-elect, Joe Biden, looks to have their back, telling Congress to pass "a robust package" to buoy the world's largest economy.
And the former head of world's most powerful central bank and likely next US Treasury Secretary, Janet Yellen, offered these reassuring words:
To the American people: We will be an institution that wakes up every morning thinking about you, your jobs, your paycheques, your struggles, your hopes, your dignity and your limitless potential.
So what kind of share price gains could investors be looking at?
According to Fundstrat Global, the S&P 500 could see gains of more than 9% in the first quarter of 2021, quoted by the Australian Financial Review:
The equity market backdrop remains bullish with the recent consolidation likely to resolve to the upside through year-end. A doubling [of] the fall 2020 trading range support[s] a move toward S&P 4000 in the first quarter of 2021 and toward a cycle 4400-4600 in 2022/2023 based on the average moves in prior four-year cycles.
(The S&P 500 is currently at 3,662 points.)
Mark Haefele, UBS Global Wealth Management's chief investment officer, explains why investors, and UBS, remain bullish (quoted by Bloomberg):
Investors have been prepared to look beyond the near-term continued rise in COVID-19 cases in many regions. They have focused instead on the potential for a return to normal social and economic activity based on the widespread roll out of effective vaccines in the first half of 2021. We see further upside for global equities in this environment, but also expect market leadership to continue to shift.
And Bank of America Corp (NYSE: BAC) sees the potential for significant share price gains in 2021 as well (quoted by the AFR):
The Sell Side Indicator (SSI), our measure of Wall Street strategists' bullishness on stocks, saw another big increase in November to 57.8 per cent from 57.0 per cent. The rise in sentiment puts the SSI at the highest level in 18 months.
With the S&P 500's indicated dividend yield of 1.6 per cent, this implies a 12-month price return of +8.6 per cent and an S&P 500 level of 3933 in twelve months. This indicator is one of our most bullish target models and highlights that sentiment on stocks is not yet at the euphoric levels one typically sees at the end of bull markets.
Historically, when our indicator has been this low or lower, total returns over the subsequent 12 months have been positive 93 per cent of the time, with median 12-month returns of +17 per cent. However, past performance is not an indication of future results.
Here comes the pent-up demand
Turning the focus back home, the holiday shopping season is upon us.
As reported by the AFR, The National Retail Association (NRA) is forecasting consumer spending will set new records this Christmas season, unleashing the pent-up demand from months in various stages of lockdown.
The Association estimates Aussies will spend $52.3 billion in brick-and-mortar shops, up 5% year on year. And the $5.2 billion of online spending the NRA forecasts represents a phenomenal 53% leap from the 2019 holiday season.
If these figures prove out, that should spell good news for many of Australia's leading retail shares. Particularly companies with a strong online presence.
Online retailer Kogan.com Ltd (ASX: KGN) could see a fresh lift in demand for its consumer electronics, furniture, and fitness offerings. The Kogan share price, down 35% from its mid-October highs, is up 120% year to date.
Iconic Aussie retailer JB Hi-Fi Limited (ASX: JBH) – with a strong online and brick-and-mortar presence – could also see a spike in sales for its home entertainment, IT products, white goods and home appliances. The JB Hi-Fi share price is down 11% from mid-October but remains up 22% so far in 2020.
