1<\/sup><\/strong><\/p>\n\n\n\n_________________________________________________________________________<\/p>\n\n\n\n
Not all of that liquidity has flowed through the capital\nmarkets yet, and more is on the way. I realize that recent fiscal stimulus\ntalks have stalled and resulted in impasse after impasse. But I remain\nconfident that another package is in the future, and I think it could amount to\nanother $1 trillion in spending. A structural budget deficit in 2021 seems all\nbut assured, which I view as a major positive for the private sector and\nultimately, stocks. The Federal Reserve also looms in the backdrop with unwavering\nmonetary stimulus.<\/p>\n\n\n\n
Reason #2: Cash\nReserves + Pent-Up Demand = Spending<\/strong><\/p>\n\n\n\nA common reflex in an economic crisis is to build-up cash\nreserves. The Covid-19 pandemic was no exception for many American households.<\/p>\n\n\n\n
In early December, personal savings were $1.3 trillion <\/em>higher than the pre-pandemic\ntrend suggested they would be \u2013 a result of households socking away cash and\nnot being able to spend through normal channels due to travel and other\neconomic restrictions. The $1.3 trillion that households have in savings\namounts to over 6% of GDP, and I think that money is eager to be spent. A\npost-pandemic economy could feel this wave of pent-up consumption demand.2<\/sup><\/p>\n\n\n\nCorporations have also been building cash reserves, with\nmany taking advantage of low rates to issue bonds. The Federal government is\neven holding historically high levels of cash, having $1.7 trillion stashed in\nthe U.S. Treasury\u2019s General Account. This liquidity is not likely to stay\ndormant in savings, in my view.<\/p>\n\n\n\n
Reason #3: Technological\nInnovation That\u2019s Profitable<\/strong><\/p>\n\n\n\nTechnology\u2019s role in economic development has been a\npersistent theme over the last 20-30 years. But the critical difference between\nnow and 20-30 years ago is that the technology companies leading the way are generating significant cash flows<\/em>.\nThat\u2019s key.<\/p>\n\n\n\nThey\u2019re also generating significant cash flows in record\ntime. Instead of spending years and massive amounts of capital to build a\nnetwork of plants or stores, they can sell a product or a service over the\ninternet, or via a smartphone. The \u201casset-light\u201d technology companies of today can\nspend their resources and profit reaching new customers, instead of maintaining\nand growing capital assets. <\/p>\n\n\n\n
2020 saw rapid-fire adoption of many new technology services\nand ways of shopping, from businesses implementing new digital infrastructure,\nto retailers rolling out e-commerce channels, to consumers trying services like\ngrocery delivery for the first time. These technological trends were underway\nalready, but 2020 served as a catalyst propelling them forward. I expect the\nmomentum to continue in the new year. <\/p>\n\n\n\n
Reason #4: Low\nInterest Rates Aren\u2019t Going Anywhere, and Investors Know It<\/strong><\/p>\n\n\n\nThe reality of lower-for-longer interest rates is generally\nbad news for savers, but generally good news for equity investors and\nborrowers. I have written before that interest rates anchored to the zero bound\ntend to push investors further out onto the risk curve, particularly those in\nsearch of yield. What assets are out on the risk curve ready to receive this\nrotating capital? Stocks, in my view.<\/p>\n\n\n\n
The short-to-medium term outlook for low\/negative real bond\nyields pushes down the discount rate, making equities attractive relative to\nbonds. When pricing stocks, a quick method is to consider a corporation\u2019s\nfuture earnings potential less the risk-free interest rate \u2013 this is the\ndiscount rate. A lower discount rate means that future corporate earnings are\nmore valuable, which by extension tends to make stocks more attractive. If the\noptions are to lose money on Treasuries or to own a portion of a company\u2019s\nfuture earnings (by owning shares of stock), investors today are being nudged\nto choose the latter, in my view. <\/p>\n\n\n\n
Furthermore, the free cash flow yield on the S&P 500 is\na staggering 10 times the yield available on the 2-Year U.S. Treasury. I\u2019d much\nrather invest in the former. <\/p>\n\n\n\n
Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\nAll of my arguments above centered on economic fundamentals\nand projections, without any mention of the vaccine! The \u2018herd immunity\u2019 we can\nachieve from vaccine uptake is perhaps the biggest story of 2021, and one I\nthink most Americans are ready to embrace. I understand that many Americans\nwill not want to take the vaccine, and that the rollout is complex and could\nget messy. But I strongly believe there is light at the end of this tunnel, and\nsociety can return to normal in the second half of next year. I\u2019m excited to\nsee what that looks like for the economy, and thinking about it makes me very\nbullish. <\/p>\n\n\n\n
To help better position yourself for what\u2019s to come in the new year, I recommend focusing on key data points and economic indicators that could positively impact your investments in the long-term. To help you do this, I am offering all readers our\u00a0Just-Released January 2021 Stock Market Outlook Report<\/a>.\u00a0<\/strong>
\u00a0
This report looks at several factors that are producing optimism right now and contains some of our key forecasts to consider such as:<\/p>\n\n\n\n- A look at the current Covid-19 situation and its impacts<\/em><\/li>
- U.S. returns expectations for 2021<\/em><\/li>
- Update on U.S. fiscal stimulus<\/em><\/li>
- A look at U.S. earnings and GDP growth rates in 2020 and what to expect for 2021<\/em><\/li>
- Zacks Rank S&P 500 Sector Picks<\/em><\/li>
- What produces 2021 optimism?\u00a0<\/em><\/li>
- And much more<\/em><\/li><\/ul>\n\n\n\n
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
<\/p>\n","protected":false},"excerpt":{"rendered":"
Mitch outlines 4 reasons we’re primed for a strong recovery (in addition to vaccines!)<\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-9167","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9167","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9167"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9167\/revisions"}],"predecessor-version":[{"id":10486,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9167\/revisions\/10486"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9167"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9167"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9167"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}