4 Reasons The Stock Market Rally Could Resume In 2021

The S&P 500 got off to a shaky start to 2021 on Monday. Enrique Abeyta, author of the Empire Elite Trader newsletter, believes there are at least four reasons why investors should shrug off Monday’s sell-off and look for the 2020 stock market rally to resume in 2021.

1. Interest rates are still historically low. Companies have access to extremely low-cost capital, and Abeyta said central banks are unlikely to raise interest rates anytime soon. In fact, the Federal Reserve has projected no rate hikes through at least 2023.
2. Economies are getting massive liquidity injections. In addition to low rates, the Fed has pumped trillions of dollars into the economy via unprecedented stimulus measures. Abeyta said a rising money supply means more “oxygen” for the economy and greater capacity to purchase goods, services or assets of all types.
3. The world is positioned for synchronized global growth. It’s rare that all the major economies in the world are all synchronized at the same point in an economic cycle. However, Abeyta said the whole world shut down all at once for the pandemic, and the whole world should now be positioned to recover at the same time.
4. Companies are positioned for staggering earnings growth. The shutdowns in 2020 have set the growth bar for 2021 extremely low. Abeyta pointed out that companies like airlines, casinos and restaurants endured precipitous drops in business in 2020. Not only will earnings and revenue growth likely skyrocket in 2021, the companies that survived the downturn have an opportunity to gain additional market share from those that didn’t.

Related Link: S&P 500 Has Only Been This Expensive One Other Time — At The Peak Of The Dot-Com Bubble

Despite the bullish macroeconomic backdrop, Abeyta said investors should be prepared for sharp near-term corrections given how far stocks have already rallied off the March lows.

“In the type of market I envision, investors can see some of the best returns of their careers ... but the plan and how they trade that plan will be paramount,” he said.

Benzinga’s Take: A new calendar year is a great time for investors to rebalance and reassess their portfolios and make sure their largest investments are still well-positioned in the evolving economy.

One of the biggest weapons investors have at their disposal to ensure that they will not miss out on upside in 2021 is diversification across different asset classes, market sectors, geographical regions and currencies.