Where to invest in 2021? What predictions for the stock market? The situation is complicated, but there are two (almost) certainties: ethical and sustainable investments will be favored, the gap between the real economy and markets will increase.
If 2020 was characterized by an economic crisis (but not in the markets) and uncertainty due to the pandemic, the only certainty is that 2021 will be a strange year for the markets. The health emergency should come to an end, or at least its end is in sight: many of the new trends we have experienced this year, such as the mega-performance of some high-yield stocks, may turn out to be short-lived. But it is not certain that there will be a collapse of the stock market in 2021, some stocks may be more resistant to changes than imagined, so it is better to carefully evaluate the possible dynamics of the markets for the next 12 months.
The stock market will suffer but earnings will not stop growing: thanks to vaccines and new treatments, the fight against Covid in 2021 should be won. While a return to normal seems difficult today, economic improvements are very likely to support the stock market rally over the next 12 months and beyond.
2021 investment forecast: ethical and sustainable investments will grow
Global warming has not taken a break in 2020, indeed the climate crisis is more urgent than ever. That’s why environmental, social and governance (ESG) investments will be one of the biggest trends next year. Simply put, investing in ESG means buying stocks from companies that don’t contribute to the world’s problems (socially responsible investing) and divesting from those companies that do.
Many major asset managers, such as BlackRock, have already made a commitment to consider ESG factors in 100% of their investments by the end of 2020 and others are sure to follow. Additionally, ESG investing is becoming significantly more popular with young investors, so it will be a major force in 2021 and beyond.
The decoupling of the market from the ‘real economy’ in 2021 will increase
After the collapse in March, the stock market has started to rise again: unemployment has soared and its recovery to pre-pandemic levels is still incomplete (both in the US and in Europe), entire sectors are suffering from the closure of restaurants and small businesses, but large corporations have seen their share prices rise dramatically.
This trend will intensify in 2021 for a big reason: the market is looking ahead. As difficult as things are from an economic point of view, there is a clear trend of improvement, even if it is slower than we would like. Investors look to this trend and assume that things will be better tomorrow than they are today.