My 2021 Prediction

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‘Tis the season for making predictions about next year. While these things are mostly pointless because any number of unknowable things will occur over the next 12 months (can anyone say COVID!), I figured I’d get an early start on mine since the financial press is already bugging me about it.

The funny thing about most of these “forecasts” is they look awfully similar to what happened in the current year. If it was a rough year for stocks, most of these predictions will be very subdued. If it was a great year, expect most pundits to forecast another banner year for stocks.

Unfortunately, the stock market doesn’t work that way. In fact, most of the time the stock market does something entirely different next year. That means a good starting point for predicting next year is eliminating what happened this year from the list of possibilities.

That’s great news because I don’t think anyone could handle another year of pandemic! But more seriously, it was an amazing year for stocks all things considered. In fact, it was a good year for stocks period with YTD gains of 15%. But looking ahead to next year, that means we cross “good year” off the list of possibilities for 2021.

That leaves us with great year, not so good year, bad year, and really bad year. I’m torn between “great year” and “not so good year”. Maybe Covid stops being a concern this spring and everyone goes on a spending spree after having been cooped up for the last 12 months, setting the economy on fire. Or maybe the stubborn 6% unemployment becomes a persistent drag on the economy and we fall into a very conventional recession.

To be honest, I could easily see either scenario play out. And why should we be forced to choose one when we can have both! Therefore, my 2021 prediction is a strong start to the year as we conquer COVID followed by a second-half realization a lot of people are still unemployed and that’s not good for the economy. After producing very respectable midyear gains, I expect stocks to stumble in the back half of the year and finish either flat or slightly negative.

And next year at this time we can come back to this post and laugh at just how wrong I was.

If anyone wants to see what I predicted for 2020, check out this post from last year. Spoiler alert: I failed to predict a health crisis would crush the global economy and stocks would rally to all-time highs as a result.

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