Why I think 2021 will be a blockbuster year for stocks

[mathjak107]

earnings for 2021 are predicted to be about 8% higher than 2019 ..2020 is not even a benchmark ...it is just an outlier so to speak .

this is based on what we know up until today

[pmward]

earnings for 2021 are predicted to be about 8% higher than 2019 ..2020 is not even a benchmark ...it is just an outlier so to speak .

this is based on what we know up until today

Predictions don't matter either. How often do "beats" get sold and "misses" get brought? It happens all the time. What one analyst, or another, or even an aggregate of them say is meaningless in the short to medium term.

[mathjak107]

well when the estimates and predictions are wrong , that is when prices change .

[pmward]

well when the estimates and predictions are wrong , that is when prices change .

No. Estimates and predictions are wrong more than they are right. There are times they are wrong and nothing happens. There are times they are wrong and go in the way they are predicted (a beat turns into an increase in price, a miss turns into a decrease in price), and there are times they are wrong and the response is the opposite of what would be predicted (a miss turns into a gain in price, a beat turns into a decrease in price). Statistically speaking, it's a dice roll. You never know for one if they will beat or miss, and for two how the market will take that beat or miss. Assuming that a miss will always be sold, or a beat will always be bought is one of the most common mistakes beginner traders make.

[mathjak107]

personally i think we are headed for stagflation .

this virus likely will not end until the world reaches critical mass where in some shape or form most of the population gets exposed to it and the transmission of it has less and less of a population to go to .

the vaccine will likely be ineffective as the strain morphs like the flu does .

that is eventually how the pandemic in the 1900's finally ended , it reached a point of critical mass .

so i think we are in for more pain and higher inflation as the gov't tries to spend their way out

[dualstow]

This is the first i’ve seen of this thread, as I was tied up last week.

I hat to be a wet blanket here but......

barring their winning both seats in the Georgia runoffs (not very likely....they probably don't even win one let alone both), the Dems will not have 50 votes in the Senate. This means that Mitch McConnell will remain Senate Majority Leader.

What incentive does Senator McConnell have to allow Biden to get anything passed?
...

Doesn’t the stock market love gridlock? There’s already pretty good political gridlock.

I *would* say that I agree with pmward’s premise that is the title of this thread. The only reason I’m not saying it is because i don’t want to jinx it. But if I were able to say I agree without negatively altering reality, I would.

[pmward]

personally i think we are headed for stagflation .

this virus likely will not end until the world reaches critical mass where in some shape or form most of the population gets exposed to it and the transmission of it has less and less of a population to go to .

the vaccine will likely be ineffective as the strain morphs like the flu does .

that is eventually how the pandemic in the 1900's finally ended , it reached a point of critical mass .

so i think we are in for more pain and higher inflation as the gov't tries to spend their way out

See I disagree on many fronts. Now that we have congress actually supplying fiscal the "stag" part of "stagflation" is off the table. There will be growth alongside the inflation, for all the numerous reasons I listed in the OP. MMT is coming, whether we agree with it or not. I don't invest based on the ideal of what I feel should happen, I invest based on the reality of what is happening and will happen. So stocks will do well. What we are headed towards at some point in the years ahead (another deflationary event or two prior in the coming years is still possible before the new secular trend begins in earnest) far more resembles the 40s than the 70s. Growing economy. Volatile unpredictable spikes of inflation instead of consistent inflation (maybe boom 15% one year, 2-3% the following 2 years, boom 12% the year after, etc). Yield curve control holding the treasury yields down to inflate the debt away (2-3 10%+ spikes over the next 10-12 years with yields held at say 2% would basically make the debt problem go bye bye). Fed basically holding the majority of the debt, being the main bag holder, and potentially even "forgiving" the debt they hold. What happened in the 40s when they eventually released the yield curve control? Absolutely nothing. It was a total non-event. Yields stayed down on their own for decades following. In this world I don't see stagnation. I see the table set for a lot of growth. Just like we had a lot of growth in the 40s-60s as and after the debt was inflated away. Bad for bond holders (at least in real after-inflation terms), great for owning literally anything else other than bonds.

[jalanlong]

personally i think we are headed for stagflation .

this virus likely will not end until the world reaches critical mass where in some shape or form most of the population gets exposed to it and the transmission of it has less and less of a population to go to .

the vaccine will likely be ineffective as the strain morphs like the flu does .

that is eventually how the pandemic in the 1900's finally ended , it reached a point of critical mass .

so i think we are in for more pain and higher inflation as the gov't tries to spend their way out

See I disagree on many fronts. Now that we have congress actually supplying fiscal the "stag" part of "stagflation" is off the table. There will be growth alongside the inflation, for all the numerous reasons I listed in the OP. MMT is coming, whether we agree with it or not. I don't invest based on the ideal of what I feel should happen, I invest based on the reality of what is happening and will happen. So stocks will do well. What we are headed towards at some point in the years ahead (another deflationary event or two prior in the coming years is still possible before the new secular trend begins in earnest) far more resembles the 40s than the 70s. Growing economy. Volatile unpredictable spikes of inflation instead of consistent inflation (maybe boom 15% one year, 2-3% the following 2 years, boom 12% the year after, etc). Yield curve control holding the treasury yields down to inflate the debt away (2-3 10%+ spikes over the next 10-12 years with yields held at say 2% would basically make the debt problem go bye bye). Fed basically holding the majority of the debt, being the main bag holder, and potentially even "forgiving" the debt they hold. What happened in the 40s when they eventually released the yield curve control? Absolutely nothing. It was a total non-event. Yields stayed down on their own for decades following. In this world I don't see stagnation. I see the table set for a lot of growth. Just like we had a lot of growth in the 40s-60s as and after the debt was inflated away. Bad for bond holders (at least in real after-inflation terms), great for owning literally anything else other than bonds.

So with that outlook do you still hold a classic 4x PP with its bond exposure?

[pmward]

personally i think we are headed for stagflation .

this virus likely will not end until the world reaches critical mass where in some shape or form most of the population gets exposed to it and the transmission of it has less and less of a population to go to .

the vaccine will likely be ineffective as the strain morphs like the flu does .

that is eventually how the pandemic in the 1900's finally ended , it reached a point of critical mass .

so i think we are in for more pain and higher inflation as the gov't tries to spend their way out

See I disagree on many fronts. Now that we have congress actually supplying fiscal the "stag" part of "stagflation" is off the table. There will be growth alongside the inflation, for all the numerous reasons I listed in the OP. MMT is coming, whether we agree with it or not. I don't invest based on the ideal of what I feel should happen, I invest based on the reality of what is happening and will happen. So stocks will do well. What we are headed towards at some point in the years ahead (another deflationary event or two prior in the coming years is still possible before the new secular trend begins in earnest) far more resembles the 40s than the 70s. Growing economy. Volatile unpredictable spikes of inflation instead of consistent inflation (maybe boom 15% one year, 2-3% the following 2 years, boom 12% the year after, etc). Yield curve control holding the treasury yields down to inflate the debt away (2-3 10%+ spikes over the next 10-12 years with yields held at say 2% would basically make the debt problem go bye bye). Fed basically holding the majority of the debt, being the main bag holder, and potentially even "forgiving" the debt they hold. What happened in the 40s when they eventually released the yield curve control? Absolutely nothing. It was a total non-event. Yields stayed down on their own for decades following. In this world I don't see stagnation. I see the table set for a lot of growth. Just like we had a lot of growth in the 40s-60s as and after the debt was inflated away. Bad for bond holders (at least in real after-inflation terms), great for owning literally anything else other than bonds.

So with that outlook do you still hold a classic 4x PP with its bond exposure?

Most of my portfolio is in a levered tactical strategy these days. I still have cash and gold static allocations, but stocks and bonds are currently decided by a quant TAA strategy (of which I currently have no bonds, my tactical strategy currently has me in U.S. large caps and emerging markets). When my strategy tells me to be in bonds, I'm in bonds. But it's all decided algorithmically using volatility, trend, absolute momentum, and relative momentum. I don't take inflation or yields into account in any way. So regardless what yields and inflation are at, my strategy would not change.

[pmward]

More emerging evidence to back up my 2021 expectations... AirBnB and DoorDash IPO's. If both of these IPO's can double in price day 1, it shows there is still pent up appetite for speculation. Bull markets die ONLY when the appetite for speculation runs out. There's still way too much speculative appetite for the bull market to be done. There has to be at least another year left to the secular bull market from the 09 lows.

[jhogue]

Don't bull markets die when earnings fail to prop up P/E's?

[pmward]

Don't bull markets die when earnings fail to prop up P/E's?

Nope. Earnings have nothing to do with it. It's all about cash flows. As long as cash flows (which are primarily driven by speculation) are willing to keep flowing in, the bull will continue. P/E's don't matter in a bull market, they matter in a bear market. The moment the speculative cash flows are no longer willing to go in, the bull dies and the bear begins. The reason those flows stop coming in can be fundamental (like in 2000) but not always. Crazy markets tend to get more crazy.

Obviously ABNB and DASH's earnings in P/E are pretty ridiculous. But speculation is not only willing to put cash flows into them, but to double both stocks price on day 1. This is 1998 behavior, not 2000 behavior. Before the peak in 2000 the IPO's started failing. The IPO's failing were the first warning shot that speculators were exhausted. We have the opposite right now, we have signaled that the appetite for speculation is through the roof. The speculators want more, they are nowhere near exhausted. As long as appetite for speculation is high, the stock market will keep going up.

[mathjak107]

I liked it better when so many were pessimistic.....bull markets don’t end with the pessimism we had .

Now by just about any measure things are overly bullish again .that scares me

[pmward]

I liked it better when so many were pessimistic.....bull markets don’t end with the pessimism we had .

Now by just about any measure things are overly bullish again .that scares me

Yeah, don't get me wrong I don't think this is a great time for long term buy and pray investing. For 10+ year timeframes CAPE and the like are good metrics. They just suck for projecting anything less than 10 year returns. Like I said, this feels like 1998. I think 2021 will be a really good year, but it won't be an easy market by any means. 1-2 corrections between now and Jan 1 2022 are likely. But on the whole, I do still think 2021 is a great year and will hit 4k+.

[dualstow]

I liked it better when so many were pessimistic.....bull markets don’t end with the pessimism we had .

Now by just about any measure things are overly bullish again .that scares me

But we’ve been saying that since at least 2013.

And at least one boglehead said the covid crash was “obvious” to him. He got out of stocks. I wonder if it was obvious how short-lived that drop was going to be.

[mathjak107]

I liked it better when so many were pessimistic.....bull markets don’t end with the pessimism we had .

Now by just about any measure things are overly bullish again .that scares me

But we’ve been saying that since at least 2013.

And at least one boglehead said the covid crash was “obvious” to him. He got out of stocks. I wonder if it was obvious how short-lived that drop was going to be.

not really .

if you look at many of the indicators for bullishness they are all over the map at times .

In a recent weekly AAII survey of individual investors, bullishness hit 55% (versus the long-term average of 37.9%), the highest reading in nearly
three years.

Evercore ISI surveys 303 large institutional investors weekly,and currently, over 62% believe the next 10% move in stocks will be up (less than 25% felt that way in late April)

The CNN Business Fear & Greed Index, which uses seven measures of investor behavior, is now registering “extreme greed.” For example, one of the
seven factors is the ratio of put volume (a put gives the buyer the right to sell a stock at a set price) to call volume (the right to buy a stock at a set price ..

If put buying is high, investors are expecting stock prices to decline and vice-versa. Recently, volume in put options has lagged volume in call options by 66.50%, among the lowest level of put buying in the last two years.

[dualstow]

I’m not speaking of the indicators themselves but the fact that people have been giving reasons why the market has been ripe for a crash since at least 2013. Eventually it must come down and there will be a lot of I told you so’s, forgetting that they were wrong every year for going on 7 years now.

All one has to do is maintain a stock to non-stock ratio and ignore all this noise.

[mathjak107]

I’m not speaking of the indicators themselves but the fact that people have been giving reasons why the market has been ripe for a crash since at least 2013. Eventually it must come down and there will be a lot of I told you so’s, forgetting that they were wrong every year for going on 7 years now.

All one has to do is maintain a stock to non-stock ratio and ignore all this noise.

Or with a long term view just sit in diversified equities and look again in a few decades.

Financially there is no logic to a long term investor mitigating short term dips with other assets that tend to underperform over the longer term and hurting long term returns permanently.....

So either way will work fine .

In fact 50/50 and 100% equities in retirement, have almost no difference in out come success rate wise ...I think over 30 year periods 100% equities failed to last 2 more times .. 50/50 failed 6 of the 120 30 year cycles and 100% equites failed 8...on the other hand going out longer 100% equities had a higher success rate .

Not that I am suggesting retirees should be 100% equities ..but the fact is that it really has not behaved much different than 50/50 has because the higher up years have acted as a cushion in the down years while spending down

[pmward]

I liked it better when so many were pessimistic.....bull markets don’t end with the pessimism we had .

Now by just about any measure things are overly bullish again .that scares me

But we’ve been saying that since at least 2013.

And at least one boglehead said the covid crash was “obvious” to him. He got out of stocks. I wonder if it was obvious how short-lived that drop was going to be.

not really .

if you look at many of the indicators for bullishness they are all over the map at times .

In a recent weekly AAII survey of individual investors, bullishness hit 55% (versus the long-term average of 37.9%), the highest reading in nearly
three years.

Evercore ISI surveys 303 large institutional investors weekly,and currently, over 62% believe the next 10% move in stocks will be up (less than 25% felt that way in late April)

The CNN Business Fear & Greed Index, which uses seven measures of investor behavior, is now registering “extreme greed.” For example, one of the
seven factors is the ratio of put volume (a put gives the buyer the right to sell a stock at a set price) to call volume (the right to buy a stock at a set price ..

If put buying is high, investors are expecting stock prices to decline and vice-versa. Recently, volume in put options has lagged volume in call options by 66.50%, among the lowest level of put buying in the last two years.

The thing with sentiment indicators like the AAII is they are short term indicators. They are very volatile. I follow the AAII regularly, another favorite of mine is the active fund long/short percentages, which also are in nose bleed territory right now. But here's the thing... all it takes is a 5-10% correction to flip those sentiment indicators back to normal, or even bearish. I totally agree we are overdue for a correction. A correction would be healthy, to get some people to raise cash, so there is more cash to come back in and fuel the next leg higher in Q1. These indicators are not indicative in any way of long term secular trends is what I'm getting at. They really are only relevant for the next few weeks at most, and even then an "overbought" market tends to get more "overbought".

[dualstow]

...
All one has to do is maintain a stock to non-stock ratio and ignore all this noise.

Or with a long term view just sit in diversified equities and look again in a few decades.

Financially there is no logic to a long term investor mitigating short term dips with other assets that tend to underperform over the longer term and hurting long term returns permanently.....
...

You mean like gold, cash and long-term treasurys?

[mathjak107]

...
All one has to do is maintain a stock to non-stock ratio and ignore all this noise.

Or with a long term view just sit in diversified equities and look again in a few decades.

Financially there is no logic to a long term investor mitigating short term dips with other assets that tend to underperform over the longer term and hurting long term returns permanently.....
...

You mean like gold, cash and long-term treasurys?

for a long term investor , odds are 100% diversified equities over decades will give them a much higher balance . by diversified i mean broad based equity funds without individual company risk . sorry , no pp yet .

portfolio's with bonds , gold , etc should come later in my opinion when we enter the red zone of retirement .

that is after we grew our savings as much as we could .

that is about 10 years before and 10 years in to retirement as kitces found . that is when our fuel tanks are full and any big hits can be huge dollars .

[StrategyDriven]

...
All one has to do is maintain a stock to non-stock ratio and ignore all this noise.

Or with a long term view just sit in diversified equities and look again in a few decades.

Financially there is no logic to a long term investor mitigating short term dips with other assets that tend to underperform over the longer term and hurting long term returns permanently.....
...

You mean like gold, cash and long-term treasurys?

for a long term investor , odds are 100% diversified equities over decades will give them a much higher balance . by diversified i mean broad based equity funds without individual company risk . sorry , no pp yet .

portfolio's with bonds , gold , etc should come later in my opinion when we enter the red zone of retirement .

that is after we grew our savings as much as we could .

that is about 10 years before and 10 years in to retirement as kitces found . that is when our fuel tanks are full and any big hits can be huge dollars .

You might be surprised at multi-asset portfolios that are balanced annually, counter intuitive but they often lead to less volatility and higher performance.

[mathjak107]

There are no portfolios I can think of that have a high rate of success beating 100% equities over typical accumulation stages that span 25-40 years....

We had some exceptions over 20 years but they are very few and highly unlikely to have bonds perform like they did with a 40 year rate slide

Sorry , but I don’t see it happening over accumulation periods going forward ..it was hard enough to do prior if it all..even for 20 years you would need to cherry pick an exact year like 2000 or one of them in some terrible time frame to come out ahead ...if you move a year or so away things will go back to normal and it won’t likely beat 100% equities .

It is tough to beat 100% over long periods of time

[StrategyDriven]

There are no portfolios I can think of that have a high rate of success beating 100% equities over typical accumulation stages that span 25-40 years....

We had some exceptions over 20 years but they are very few and highly unlikely to have bonds perform like they did with a 40 year rate slide

Sorry , but I don’t see it happening over accumulation periods going forward ..it was hard enough to do prior if it all..even for 20 years you would need to cherry pick an exact year like 2000 or one of them in some terrible time frame to come out ahead ...if you move a year or so away things will go back to normal and it won’t likely beat 100% equities .

It is tough to beat 100% over long periods of time

Your mind is already made up. Cheers.

[mathjak107]

There are no portfolios I can think of that have a high rate of success beating 100% equities over typical accumulation stages that span 25-40 years....

We had some exceptions over 20 years but they are very few and highly unlikely to have bonds perform like they did with a 40 year rate slide

Sorry , but I don’t see it happening over accumulation periods going forward ..it was hard enough to do prior if it all..even for 20 years you would need to cherry pick an exact year like 2000 or one of them in some terrible time frame to come out ahead ...if you move a year or so away things will go back to normal and it won’t likely beat 100% equities .

It is tough to beat 100% over long periods of time

Your mind is already made up. Cheers.

so show me a portfolio that beats 100% equities over our typical accumulation periods .. there are none. in fact you can see it on Tyler's site .

there are only a handful of exceptions out to about 20 years . but nothing has done better for those with the typical 25-40 year spans we are working and saving..

that is with 40 years of a bull market in bonds too . even out to 20 years it would take finding the outliers and exceptions . so much so that move one year before or after the exception and it goes right back again to 100% equities being the top performer