Since we are well and truly now in the fabled 'twelve days of Christmas', many investors are starting to turn their attention to the year in front of us, and what tidings it might bring. After such a year in 2020, it's hard to know what 2021 has in store for investors.
Could it bring a market crash? Another flat-ish year? Or a year that sees the S&P/ASX 200 Index (ASX: XJO) break above its most recent highs we saw back in February. Perhaps it could even test 8,000 points for the first time ever?
The answer will of course be obvious in hindsight. But since we don't yet have the benefit of that, let's look at what an expert thinks.
According to reporting in the Australian Financial Review (AFR) today, an American fund manager is predicting a bumper year for US shares (which could arguably translate into a bumper year for our own ASX 200).
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A 25% upside in 2021 for US shares?
The AFR reports that New York-based Fundstrat Global's research chief Tom Lee is expecting a 25% surge for the American S&P 500 Index (SP: .INX), saying it could end the year as high as 4,300 points (it closed this morning at 3,722 points).
Mr Lee said the US is on the cusp of a "new economic expansion" which "should lead to profit margin explosion after major cost-cutting efforts this year, a drop in equity risk premia and lower volatility". The reason to be optimistic on the share market is reportedly "pent-up demand", as well as "massive relief and celebration with an end to the pandemic". He says this could lead to "a substantially stronger than expected GDP recovery. This is what the resilience of equities in 2020 seem to suggest".
Speaking of volatility, Mr Lee notes that the VIX (an index that measures US share market volatility) has "averaged 29.5 this year, the third-highest level in 30 years". Lee sees the VIX averaging just 12 in 2021, suggesting that we should see far less volatility.
However, this happy prediction comes with a caveat. Mr Lee said investors "need to be prepared for some give and take as history says the S&P 500 will [be] likely to correct by 10 per cent to 3,500 between February and April". He puts this down to the fact that shares "need to work off overbought conditions before mid-year… I am stating the obvious – but markets cannot rise in a straight line".
However, Mr Lee also notes that risks still abound, and investors need to be careful of the unexpected. He lists some possible things to watch out for:
COVID-19 could mutate; vaccines do not work; the US dollar crashes; interest rates surge; investors are too bullish; Congress goes after big tech; and, President-elect Joe Biden has health issues.
But if all goes well, Mr Lee sees 2021 as the start of a new bull market, one that he sees possibly running all the way to 2030, with an S&P 500 at 10,000 points. That would certainly make the next decade one not to miss out on.
