While it is typical at the end of any year for “very smart people with access to the best data and vast resources at their disposal” to make predictions about what the markets might do in the coming year, “far more often than not these predictions end up being hilariously wrong.” This according to a recent Bloombergarticle.
“If anything,” the article reports, “2020 should have proven once and for all the futility of trying to make accurate market predictions,” citing the pandemic and the subsequent market crash and recession, “only to be followed by one of the fastest economic and market recoveries in history.” And while a strategist who may have predicted that the S&P 500 would be up by over 20% in 2020 would have been correct, it would have been correct “for the wrong reasons.”
According to the article, the only predictions to worth anything are those focused on the very near-or the very long-term— “one or two months ahead or 10 to 20 years ahead.” For example, it notes that one-year forecasts are likely to be disrupted by “exogenous events, unlike very short- or long-term outlook.”
If you feel compelled to predict 2021 market movements, the article advises to focus on monetary and fiscal policy, which it describes as “the two biggest inputs to financial markets, and we don’t seem to be getting a lot of restraint in either.” It contends that a centrist president like Joe Biden and a politically moderate climate could improve the market outlook, stipulating, “We’re not there yet, but the 2020s have the potential to be very friendly to financial assets.”
Regarding interest rates, the article argues, “we’re in a bit of a pickle. With an expanding economy, longer-term rates should rise from these record low levels, and the difference between short- and long-term bond yields should expand.” But as a practical matter, it adds, rates cannot rise too much because of the federal government’s huge debt burden.
The article notes that if forecasters were to extrapolate the events of recent months, they would predict “value stocks outperforming growth stocks, a weaker dollar and rising commodity prices.” While it is possible that those trends will continue, the article argues, “the only reliable prediction to make is that there will be plenty of surprises in 2021.”