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2020: A Year to Remember

Written by: Benjamin Bimson CIMA®, CMT® / CIO, BCJ Financial Group

2020 has been a year of historic proportion. I do not believe that anybody who lived through 2020 will soon forget the impact that it has had on just about every facet of life, right down to the details of toilet paper. Every year, my family marks interesting and notable remembrances from the prior year. One of the ornaments is quite telling as to one-way 2020 will be remembered in my family.

This time of year, we often look forward to what might happen in 2021. If we learned anything in 2020, it should be that we can try predict, but should be prepared to be surprised. For 2021 there are still several unknowns.

Elections are still ongoing and Senate control will not be known until sometime after the January 5th, 2021 special election in Georgia, COVID is an ongoing pandemic, and winter is yet to get underway. There are beginnings of new shut-down measures in some areas and Congress has still not agreed on another round of stimulus (at least at the time of this writing).

However, all is not gloomy. There are some particularly good reasons to be optimistic. The FDA is expected to approve the use of vaccinations against COVID, there is optimism for additional fiscal stimulus, housing markets are strong, and global growth is improving.

Given the backdrop of economic forces, it is not unreasonable to expect there to be near record estimates for corporate earnings following the historic collapse of earnings in 2020. This expectation is largely what has driven markets to rally so strongly after crashing in early 2020. If this expectation comes true, markets should do very well in early 2021.

However, the risk does increase in the second half of 2021 that if this does not happen. Markets may correct for the disappointment since stock market returns tend to anticipate news and then react to the facts positively or negatively.

The dashed light blue line shows the earnings collapse of 2020 and the orange dashed line illustrates analyst consensus estimates for 2021 earnings per share. Source: Ned Davis Research

There is an expectation that the Biden administration is likely to pursue a policy of stimulus that would also have a positive impact on GDP growth. Infrastructure, education, housing, social security benefits, and other items are all expected to be sought by the incoming administration. This will likely be funded with some level of tax increases on corporations, payroll tax, and individual income tax increases. It is unlikely that everything will get implemented and if the Republicans retain control of the Senate, some of the policy changes would most likely be substantially lower than what Biden proposed during his campaigning. Despite all of that, there is a high probability that this would still be a big initial boost to GDP in 2021.

Lastly, next year we are likely to see at least some political risk reduced. Certainly, once all the elections and January 21st pass, we will hopefully be able to simply move forward. One of the great hopes that many have is that as we begin to solve the COVID crisis, political turmoil settles down. All of this will hopefully begin to give a clear economic roadmap and a more normal stock market environment.

Based on the things we know and the assumptions we can make, expectations are for a strong first half of 2021 and then we will see where we are for the remainder of next year. All things being equal, data supports an average good year or better for the stock markets!

We can all wish for a normal version of that, but we all know that 2020 has taught us to sometimes be thankful for the small things and that relationships are priceless.

As much as we are looking forward to putting 2020 behind us and heading into the new year. We want to take a moment and thank you all for your friendship, for your patience, for your stoutheartedness this past year. Things are not normal, but we can draw even closer together in the face of adversity. From all of us at BCJ we wish you the warmest Christmas and New Year. May 2021 be much better than 2020!

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Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein.  BCJ FG 20-155

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