Each year, I like to make a few bold, but realistic, predictions of how the stock market could perform. My track record is pretty decent. Just to name a few examples from my 2020 bold predictions article, I forecast that we'd see the first recession in a decade and that interest rates would plunge.
Clearly, I didn't have a crystal ball that predicted the COVID-19 pandemic. I simply felt that after about 10 years of the stock market essentially going straight up, there was more that could go wrong than right. I wasn't right about everything. Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) didn't make any massive acquisitions, and there wasn't a ton of M&A activity in the financial sector.
Now that 2020 is (finally) coming to a close, it's time for another look into the future. With that, here are four bold predictions for the stock market in 2021.
1. Reopening will happen quicker than most expect
This isn't necessarily a stock market prediction, but it could have big implications for the stock market if it happens.
Coronavirus vaccines are now being administered across the U.S. and throughout the world. It will understandably take some time before enough Americans are vaccinated to achieve herd immunity and effectively end the pandemic. However, there are varying estimates of when this could happen. Some say as early as March or April, while other experts have cautioned that it could take until September or October.
I tend to think it'll happen earlier than most people expect. We currently have two vaccines approved for emergency use, and more are likely to follow early in 2021. With billions of dollars allocated to vaccine distribution in the latest stimulus bill and President-elect Biden planning to use the Defense Production Act to increase vaccine availability, the math points toward just a few months until everyone who wants a vaccine can get one.
2. Reopening stocks will dramatically outperform the market
This goes along with the first prediction. Many so-called reopening stocks have performed incredibly well since news of vaccine effectiveness started to emerge, but this could be just the beginning. Just to name a few:
- Event-focused hotel operator Ryman Hospitality Properties (NYSE: RHP) is still down 22% from where it started 2020.
- Delta Air Lines (NYSE: DAL) is down 31% in 2020, and most other airlines have performed similarly.
- Mall operator Simon Property Group (NYSE: SPG) is down by 43% in 2020.
- Urban office REIT Empire State Realty Trust (NYSE: ESRT) is down 31% year-to-date.
One of the big reasons they're still down by so much is that the timetable for the rest of the pandemic remains uncertain. If the vaccine rollout happens faster than expected, it would likely be a big positive catalyst for the "reopening stocks."
3. The S&P 500 will fall in 2021
Wait a second -- isn't this prediction contradicting the previous one? After all, if I think there's huge upside for some of the most beaten-down stocks, why would the S&P 500 have a bad year?
The short answer is that the S&P 500 is weighted by market cap, and the larger positions are dominated by stocks that benefited from the stay-at-home economy. The five largest components of the S&P, Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB), and Alphabet (Google) (NASDAQ: GOOGL)(NASDAQ: GOOG) all performed extremely well in 2020, as the pandemic didn't hurt or even helped their businesses. Meanwhile, among the top 20 S&P 500 components, there are only two -- JPMorgan Chase (NYSE: JPM) and Walt Disney (NYSE: DIS) -- that I'd consider true reopening stocks.
So, as people travel more, attend live performances, go to the movies, shop in physical retailers, and do everything they haven't been able to do in 2020, many stocks will benefit, but the overall S&P 500 might not.
4. Oil will finish 2021 above $70 per barrel
As my last bold prediction, I think oil will rise to at least $70 per barrel in 2021, which represents about 43% upside over the current price.
The reason? I think the market is severely underestimating the pent-up demand for people driving and flying around the country. I don't buy that people want to work from home permanently, so more people could use gasoline to commute to work than experts are predicting. I'd even go so far as to include oil stocks like ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), and others in the "reopening stocks" category.
These are bold predictions
As a final thought, keep in mind that these are intended to be bold predictions. I don't necessarily expect to be 4-for-4 with them. But all four are plausible scenarios that are more likely than most experts give credit for.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP owns shares of Apple, Berkshire Hathaway (B shares), Empire State Realty Trust, Ryman Hospitality Properties, Simon Property Group, and Walt Disney and has the following options: short February 2021 $140 calls on Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Facebook, Microsoft, Ryman Hospitality Properties, and Walt Disney. The Motley Fool recommends Delta Air Lines and Empire State Realty Trust and recommends the following options: short January 2021 $135 calls on Walt Disney, long January 2022 $1920 calls on Amazon, long January 2021 $60 calls on Walt Disney, short January 2021 $200 puts on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, and long January 2021 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.