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Outlook 2021: Investment Opportunities for the Coming Year—and Beyond

Strong corporate profits combined with low interest rates could help broaden the current bull market in equities and create a favorable backdrop for corporate bonds in the coming year, believes Michael Hartnett, chief investment strategist for BofA Global Research.

Outlook 2021:

Investment Opportunities for the Coming Year

—and Beyond

With

Michael Hartnett

Chief Investment Strategist,

BofA Global Research

Please see important information at the end of this program.  Recorded on 12/01/2020.

 

[ON SCREEN TEXT]

Michael Hartnett

Chief Investment Strategist

BofA Global Research

We think the investment backdrop in 2021 is a very healthy one. You are likely to see strong corporate profit growth. And you are also likely to see low interest rates, at least from a relative historic perspective.

[TEXT OVER B-ROLL]

Strong corporate profits + low interest rates

= positive for financial markets

 

And that combination of strong profits and low interest rates is always a very positive one so far as financial markets are concerned.  So, it would not be a surprise to see in 2021 positive returns from both equities and corporate bond markets.  

It's also an outlook that speaks to a broadening of the bull market. And a broadening of the bull market, it's been very narrow to date, very concentrated in growth stocks in the U.S. and tech.

[GRAPHIC CARD WITH TEXT]

Broadening the Bull Market in 2021

·         Small-cap stocks

·         Value stocks

·         Cyclical areas

It's likely to broaden next year into areas like small cap, value, cyclicals, areas that haven't really participated much in 2020 in the bull market. We think that's a healthy development.

In addition to that, there are secular themes to those cyclical themes, secular themes that have been brewing for some time, but we expect to accelerate going forward:

[GRAPHIC CARD WITH TEXT]

Longer-term Investment Themes

·         Bigger government

·         Deglobalization / reshoring of businesses

·         Lower U.S dollar

Bigger government, a smaller world, which means less globalization or reshoring businesses to their domestic economies, and potentially debasement of the U.S. dollar.

 

[TEXT OVER B-ROLL]

Demographic themes

There are also demographic themes to do with the shift from the boomers to the Millennials in terms of electoral and spending power.

[TEXT OVER B-ROLL]

Sustainability & climate change

And of course, there is ESG and the shift towards a more climate sort of friendly backdrop so far as business is concerned.

The less healthy development may well be that you end up with less support from interest rates. You are likely next year to see interest rates move up. And that's something that for bond investors needs to be kept in mind in terms of your bond allocations.

 

 

IMPORTANT INFORMATION

All data as of 12/01/2020 and forecasts are subject to change.

Investing involves risk, including the possible loss of principal.  Past performance is no guarantee of future results.

 

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

Stocks of small-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies.

 

Value stocks are securities of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor. If the manager’s assessment of a company’s prospects is wrong, the price of its stock may not approach the value the manager has placed on it.


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