Raymond James' Ten Themes for 2021
By: Cameron Diehl, CFP®
Friends – To kick off the New Year, I wanted to share some highlights from Raymond James’ “Ten Themes for 2021” from our excellent Chief Investment Officer, Larry Adam.
Despite an unprecedented and extremely difficult year, the team’s 2020 list proved resilient, with ~85% of their ten themes proving accurate.
Given the ongoing pandemic and vaccine rollout, a new administration in Washington, the potential for further stimulus, still historically low interest rates and markets’ unexpectedly strong recovery since the lows back in March, investors are all asking “What’s next?”. The points below provide a great framework to guide conversations in 2021.
- Global Synchronized Recovery – The COVID-19 pandemic resulted in a record high number of economies experiencing a recession at the same time. However, given the nature of the outbreak and the historic scientific feat of developing a vaccine in less than one year, economies across the globe should be in a synchronized forward motion by midyear.
- Economic Recovery – The pace of economic recovery will vary throughout the course of the year until the entirety of the U.S. economy can sustainably reopen and we can return to our ‘normal’ daily lives. Even with these transitional periods, overall we expect the U.S. economy to return to healthy, positive growth on an annual basis (2021 U.S. GDP: ~4%).
- Fixed Income – The opportunities for yield are likely to remain restricted, however, investors should not start to sacrifice quality in pursuit of relatively higher rates. In 2021, we expect bonds to serve their traditional role of offsetting equity volatility rather than producing the robust capital appreciation returns we’ve seen in recent years.
- Equity Market – We’re likely to see a powerful earnings rebound (+20% EPS growth in 2021), which should help the S&P 500 reach new heights. We continue to favor large-cap growth equities in the early stages of the recovery, however value and small-cap equities may outperform once the economy fully reopens.
- Information Technology – Between the underlying changes associated with the virus and the ongoing rollout of 5G, several long-term catalysts remain in favor of the Tech sector. Although it has outperformed in recent years, the Tech sector’s strength is expected to continue due to its involvement in other sectors and superior earnings trends.
- ESG (Environmental, Social and Corporate Governance) – Between the Biden administration’s emphasis on the importance of ‘clean technology’ and the increased scrutiny surrounding the way companies provided for and care for the health and wellness of their workers, several components of ESG investing stand to benefit in the years to come.
- International Equities – Economic growth is expected to be positive in all the major economies across the globe; however, given our expectation for a gradual, sustainable reopening of the industries most harmed by the pandemic, superior sector exposure leads us to prefer domestic equities and emerging markets.
- Currencies – The global economy’s recovery, ongoing aggressive fiscal and monetary policy, a growing budget deficit, and more likely than not easing trading restrictions with China and our allies will likely prevent the U.S. dollar from moving higher. If a weakening of the dollar comes to fruition, emerging markets, commodities and U.S. multinational companies stand to benefit.
- Commodities – In 2021, the gradual return to normality and the acceleration of economic activity should slowly restore global oil demand to pre-pandemic levels, which should help support the industry’s lagging recovery.
- Asset Allocation – Despite reduced volatility, pullbacks remain a natural, healthy occurrence in the equity market, and investors need to have a plan in place so that emotionally-driven investment decisions are avoided. With valuations stretched from a historical perspective, active managers may be best suited for identifying potential areas of opportunity.
You can view a replay of a recent webinar where Larry presented these themes. If you’d like to discuss how these themes relate to your personal planning, let’s connect. I’m happy to help.
