2021 Market Winners

Dear Rich Lifer,

Turbulent and chaotic are some of the first words that come to mind when attempting to describe the beginning of 2021.

From mobs storming the Capitol to a potential second impeachment of President Trump, it appears that this year is continuing in the hectic tradition of 2020.

However, there is one thing that doesn’t seem to be rattled by the daily drama playing out on our televisions. That thing is the markets.

In fact, investors are showing signs of increasing euphoria, reflecting optimism about the potential a vaccine could provide to change the economics of a post-coronavirus world.

The Dow Jones Industrial Average rose 1.6% for the first week of 2021, marking its fourth-straight weekly gain. This advance is led by banks and energy firms and has taken the index past 31,000 in only 29 trading days.

Additionally, we saw the S&P 500 rise 1.8% rise over the first week of the year, pushing the benchmark above year-end price targets of firms including Bank of America Corp., which had braced clients for muted returns.

Bond yields also continue to rise. The yield on the 10-year Treasury note edged up for the sixth consecutive session to 1.131%, from 1.105% Friday, marking its longest winning streak since October.

So what does this all mean?

With Biden and company about to occupy the White House, this could prove to be the most important financial step you take between now and inauguration day.

2021 Expectations

Oftentimes, when economically sensitive sectors and bond yields rise together, it means Wall Street is embarking on the traditional reflation trade that anticipates a full-fledged economic recovery.

This is crucial to note because this also usually results in rising incomes and further market gains.

However, if there’s one thing we know it’s that this year is unlike any other, so comparing current trends to past trends is difficult. The stimulus fueled rally could easily complicate the usual trends.

There seems to be disagreement from the experts over what we can expect as the year continues.

Many fund managers expect the market advance to continue and argue that the case for economic recovery is sound. In fact, economists at Goldman raised their 2021 forecast for U.S. economic growth to 6.4%, in expectation of a $750 billion fiscal stimulus in February or March.

Goldman Sachs strategists led by David Kostin released a note saying, “Democratic control of Washington, D.C. after January 20 will bring greater fiscal spending, faster GDP growth, more inflation, and higher interest rates than we had previously assumed.”

However, skeptics say that stocks are still vulnerable to pandemic related fallout such as high unemployment and uncertainty over the pace of the vaccine rollout. They warn that sky-rocketing gains in certain assets like favored stocks and crypto could be unsustainable.

This is likely a recipe for continued volatility. However, there are always winners and losers in the market and it should come as no surprise who the winners of 2021 are so far…

2021 Market Winners

Businesses at the center of the economy are usually the first to feel the positive results of economic upturn. These types of businesses include banks and energy firms so it makes sense that Goldman Sachs Group Inc. and Exxon Mobil Corp. are two of the companies to benefit immediately from the economic upturn.

Goldman stocks have increased 1.03% and Exxon’s have seen 3.06% increases.

With your usual list of expected winners, some are more surprising, like used-car retailer Caravan Co. which has risen 800% off of last year’s lows.

We saw a clear trend with used-car sales over the past year due to both consumers using stimulus checks to purchase automobiles and auto dealerships struggling to get new vehicles from factories.

Other winners include electric car maker, Tesla — a presumed recipient of green-energy-related stimulus efforts favored by the Democrats who now control Congress — which is up 25% this year.

Finally, bitcoin, the popular cryptocurrency, has risen 38% in 2021 to $40,132, more than doubling the high it set three years ago.
There’s absolutely no doubt that the next few years are going to see massive transformations to our financial system.

Risks to the Rising Market

Government and Federal Reserve stimulus programs combined with the recent Democratic wins in the Senate, have put investors on inflation watch.

The 30-year Treasury yield has increased by almost one-quarter of a percentage point since the start of the year to settle at 1.863% this past Friday. And as we know, when bond yields rise, prices fall which means investors can lose money — at least on paper.

And while long-bond yields under 2% hardly mean inflation is at hand, price worries add to an already challenging business climate.

Mario Gabelli, chief executive of Gamco Investors, has some advice for investors: look at sectors of the consumer market that can withstand economic slowdown.

Paraphrasing late German economist Karl Otto Pöhl, Mr. Gabelli warns, “Inflation is like toothpaste: Once it gets out of the tube, it can’t get put back in… So you see what companies can pass through rising prices.”

Another risk to the market could come from a Federal Reserve interest-rate increase, however, this does not appear likely within the coming year or two.

The final risk to keep an eye out for would be the chance that Congress fails to pass the expected stimulus bill that Wall Street is expecting. Sen. Joe Manchin (D-W.V.) sent the markets tumbling back down last week when he publicly said he would “absolutely not” support larger stimulus checks for Americans.

Manchin later tweeted, “If the next round of stimulus checks goes out they should be targeted to those who need it.”

With the Senate majority on a razor thin margin, moderate Democrats such as Manchin will be key players in the ability to pass continued government relief.

Despite some potential risks, many still expect we will continue to see ultralow rates and continued economic improvement as 2021 gets rolling.

Ongoing News

In true 2021 fashion, as we write this piece, we are seeing tech stocks decrease after many tech companies banned President Donald Trump and cracked down on other accounts spreading misinformation.

Shares of Twitter fell more than 10% and Facebook stock decreased 3%.

The tech-heavy Nasdaq Composite dropped 165.54 points, or about 1.3%, to 13036.43. We will have to see if the decreases will continue throughout the week, or if stocks will bounce back.

Ah, never a dull moment, right?

To a Richer Life,

The Rich Life Roadmap Team

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