While the first month of 2021 may not have been the clean slate many were hoping for, the markets, at least, finally have some clarity.
Joe Biden is our 46th president, and although the blue wave in Georgia was a bit of a surprise, when you look past the tax implications of a Democratic-controlled White House, Congress and Senate, the certainty of added stimulus is a net positive for the economy.
The road to recovery still looks uneven, but there are many reasons to stay optimistic in 2021.
Consumer Discretionary and the Consumer
I remain confident about the consumer discretionary sector and the consumer as a whole, as lockdowns across the country and previous stimulus packages have resulted in increased savings for many Americans.
On average, the savings rate is usually around 5%, but today, it’s up to about 13%. Even if that goes back down to 5% over the next few years, that’s a trillion dollars’ worth of pent-up customer demand and potential consumer spending.
Some may decry more stimulus as unnecessary, as many Americans are not in dire financial straits. But many desperately need the money, and those who don’t will add the extra cash to their savings accounts.
They may not spend it immediately, but down the line, that money is going to directly help companies in the struggling travel, leisure, hospitality and restaurant businesses.
Currently, the U.S. has almost $4 trillion in money market funds, and these additional savings will eventually be injected back into the economy and market as we get more certainty this year.
More Stimulus Will Lead to Better Growth and Earnings
Over the last 11 months, we’ve seen an unprecedented amount of monetary and fiscal stimulus put in place, which will likely lead to better GDP and earnings growth. Stimulus usually takes 10 to 12 months to flow into the economy, and we’re coming up on the one-year mark of the first fiscal package.
Because of the stimulus, experts expect a 21% growth in earnings this year, and I think we could easily see a 30% growth due to the explosion of remote work. Many companies actually saw increased productivity and decreased costs, and despite all the chaos, their margins stayed elevated throughout 2020.