President Joe Biden and the stock market outlook for 2021 - opinion
“Never make predictions, especially about the future.” – Casey Stengel
By AARON KATSMANUS President-Elect Joe Biden in this file photo from July 14 2020 (photo credit: LEAH MILLIS/REUTERS)
Coming off COVID-19 how do you see the global economy performing in 2021? Will the Chinese economy continue to grow and pull the rest of the world along with it? Now the US elections are over and President Biden has been inaugurated, the question I am asked most these days is how will he impact the stock market?Every year Wall Street pundits come out with their predictions for the year ahead and year after year most of them get it wrong. A few years ago I quoted a classic ‘market outlook’ prediction from Bank of America Merrill Lynch. “2017 may be the least certain in years, with higher-than-usual risks and a binary set of outcomes that have dramatically contrasting results: euphoria or fizzle, significantly higher or lower than the base case.”That approach uses fancy terms and phrases and says nothing. Wow, binary outcomes! That means the market will either go up or go down. What a prediction!FOOLS KNOW THE FUTURE.In this week’s Torah portion we read about the last few of the 10 plagues and the Children of Israel’s exodus from Egyptian slavery. Regarding Moses, the leader of the young nation, we read in Deuteronomy 34:10, “Never again did there arise in Israel a prophet like Moses—whom the LORD singled out, face to face.”While Moses was the greatest prophet to ever live and was one of a select group of people to experience this phenomenon, prophecy ended over 2400 years ago! But for some reason everyone thinks that they can accurately predict the future. As I have written in this column numerous times, my mother of blessed memory was fond of saying, “prophecy was given to fools.”DOES IT MATTER?About a month after the election I was speaking to a client who asked me what I thought about the election results and the markets. I said that I was worried about the outcome of the Georgia senate elections, and that if the democrats win both and control both congress and the presidency, I am nervous for what appears to me the US boarding the express train towards socialism. He said to me that “you are letting your political leanings impact your market view!”
For the better part of a month I have been thinking about that line of his, and I think he was right. I do believe that there will be higher taxes, more regulation and that the government will reward those who have acted irresponsibly by borrowing money that they can’t pay back, and cancel their outstanding debt.Throw in the fact that in my humble opinion the technology sector is acting just like it did in the lead up to the burst bubble in March 2000. So why was my client right?Because in the history of markets none of these issues leave a lasting impact.As I have written numerous times, markets have a 10% drop on average once a year. Just turn the clock back 11 months. We were riding high, then Covid hit and markets lost 35% in 5 weeks. No one even remembers that just as they don’t remember the crashes in 1987, 2000 and ’08-’09 because markets have come all the way back and once again are at record high levels.No one likes to see a big drop in their portfolio but if they want to invest in stocks they need to understand that in order to get the long term large reward they need to suffer through the bad markets as well. And for a bit of optimism: Data from CFRA shows that in years that the democrats control everything, the S&P 500 average gain has been 9.8%.How to profit?I know that I sound like a broken record but the way to grow wealth is to buy good investments and hold them. If the market were to drop, buying more has been proven over and over to be very profitable. If short-term market movements make you nervous, you either have no business investing in the stock market to begin with or at the very least it’s a sign that you must dial back your exposure to stocks. As Warren Buffet said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”Investors need to remember that there are no shortcuts when it comes to investing. Vis-à-vis the stock market over the long-term, what happens during 2021 isn’t so relevant. Want to build wealth for the long-term? Stay focused and disciplined with your investment portfolio, don’t panic and make sure your investments match your goals and needs.The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. www.gpsinvestor.com; aaron@lighthousecapital.co.il
