Stock Market Sentiment for 2021

On 1/1/2017 the Dow Jones Industrial Average was 19, 864. Today it starts the day (1/8/2021) at 31,041.  Lower taxes, better foreign trade agreements, and pro-growth business policies were the impetus to the massive economic boom.

Looking ahead, the two biggest financial issues to watch in 2021 are the new administration policies along and the impact of the Covid19 related shutdowns.

I am very optimistic on both fronts.  Corporate America and Wall Street are very happy about the election results and what that could mean for stock prices going forward.

US Stock Market – My Bullish Sentiment

My optimism is driven by the expected favorable democrat led government treatment of all things related to technology companies. The biggest being Facebook, Twitter and other companies that were influential in helping the Democrat party.  I expect the favors will be returned by the new administration.

The favors I am referring to are to not push the social media giants to be under FCC Section 230: Under certain circumstances, Section 230 provides websites, including social media companies, that host or moderate content generated by others with immunity from liability.  That means they can continue to block whatever they want and decide unilaterally what others see on their platform without any liability. Second, I don’t think there will be any threat to potentially break up the monopiles some are thought to be.

This should allow huge tech companies to keep on earning big profits and their stock prices should follow by continuing to go up over time. These are the same companies that led the stock market higher the past few years and especially during the work from home Governor-mandated shutdowns.

The Federal Reserve will keep interest rates near historic lows

• This makes investing in stocks very attractive compared to low interest-paying bonds.
• It makes it cheap to borrow money for both businesses and individuals (mortgages)

Stimulus

The federal government will continue to offer stimulus checks (handouts) to people. Those stimulus payments will continue to boost the stock market, as they did in 2020. That money will be quickly spent by the recipients boosting profits and stock prices.  At some point, this may lead to inflation which is generally good for home prices and other hard assets, but not for people living on a fixed income.

Covid19 and Stock Prices

Stay-at-home stock winners will continue to thrive. Some people will never be asked to go back to an office outside their home. Many companies are profiting from this growing way of working.

I have a feeling with the election over, states that are severely shutdown will begin opening again pretty soon. Vaccines will finally start to be widely distributed around the end of January.  As this happens, I have a feeling Covid19 will no longer be the daily headline on most newscasts. The opening of America will be the best stimulus for our citizens and our economy. There is a massive amount of pent-up demand. Debts have been paid down and personal savings went through the roof as people sheltered at home.

The commerce from the closed businesses has been and will continue going to the surviving, sometimes thriving big box (Costco, Walmart, Home Depot, etc.) stores. These companies often are a part of the stock market and should thrive with states reopening. Higher corporate profits lead to higher stock prices at the expense of small businesses shutting down.

I know many people wonder about this administration’s potential tax policy and its impact. The middle class will likely get hit hardest with tax increases. The “rich” will be taxed at a higher rate, but they usually find ways to minimize what they owe. This will slow, but not stop economic growth.  Roughly, the bottom 40% of wage earners don’t pay any federal income tax, so they won’t be hurt by a federal tax increase or removing the 2017 Tax Law.

If Corporate America sees tax rates go higher, they will likely pass those on and raise prices. Again, this won’t hurt the “rich”, but will adversely impact the middle and especially low-income people.  The overall potential growth of government-run programs will slow economic growth.

This potential tax policy does not stop my near-term bullish outlook.

In summary, the new government leadership brings new policies. These policies are likely to be Corporate America and Wall Street-friendly which should bolster stock prices.

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