Don’t Expect A Market Rewind In 2021 (Wall Street Already Got One)

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

A lot of investors are looking forward to winding back the market clock by 12 months to capture the opportunities that looked so enticing before the pandemic shut the world down. I wish I could say the same.

After all, the COVID-19 outbreak was a one-time shock to the global system. As it recedes, the world should pick up roughly where it paused, right?

Back in January, when the virus was barely a rumor out of China, Wall Street felt pretty good about 2020. It was going to be a growth year, with S&P 500 earnings tracking close to 10% above what we saw in 2019.

Valuations were already a little stretched at 18X anticipated earnings. So, while that growth trend gave the bulls room to run, we weren’t counting on them to go far or fast without at least a course correction or two.

Admittedly, the Fed was gradually relaxing interest rates in the absence of real inflation. Every rate cut raised the ceiling another 2-3% into record territory.

The Old Year Looked Promising Once

All the pieces for a quiet, but productive, 2020 were in place. Maybe the market would have climbed 10% to keep up with rising earnings. This would have left stocks richly valued without raising too many bubble flags.

That would have taken the S&P 500 above 3,500, and the Dow to what then looked like a lofty 23,000.

And then, the pandemic changed the world. Instead of earnings climbing by 10% in 2020, it now looks like we’ll see them crater 13% before the year is out.

With the vaccines coming, 2021 looks like we’ve got a fresh chance to capture the original 2020 growth proposition. If anything, 22% anticipated growth will take earnings earnings right back to where they should’ve been.

But, there’s a problem. As I told Reuters this week (click to see the video), the lion’s share of that recovery has already been priced into stocks before 2021 even gets started.

It’s just a matter of math. If it looks like earnings are going back to where we expected them to be a year ago, the S&P 500 was on track to clear 3,500 without much strain.

Here, we are 170 points beyond that reasonable target, and the same earnings forecast translates into a market that can rally but bends statistics a little more with every nudge to the upside.

The Fed can’t help this time. Chairman Jerome Powell and company are already doing everything they can to support the market and the economy.

Interest rates are zeroed out. And while the market as a whole is primed to pick up the pandemic pieces, there will be corporate casualties.

The credit rating agencies have said that about 10% of high-yield bonds are going to default in 2021. Sooner or later, stressed companies will run out of room to maneuver. When they can’t pay their creditors, feedback follows.

The Sector View Has Shifted

This is why I’ve stayed on the sidelines where oil stocks are concerned, by the way. While the year-over-year flip from sector-wide losses back to profits is superficially compelling, more than a few of these companies are looking at liquidation, or, at best, forced mergers.

Consolidation is rarely a fun time in any industry. In the oil patch, the struggle for survival can get savage. We might trade a few names in special situations, but I think the knives haven’t even started falling here yet.

And let’s be honest. Crude prices simply aren’t coming back in the foreseeable future. A year ago, Wall Street thought we’d be seeing $57 a barrel right about now.

Reality came in below $40. Even now, the outlook has deteriorated to the point where Big Oil will make $47 a barrel, if everything goes perfectly. As the pandemic taught us, perfection is rarely encountered in the real world.

A year ago, Wall Street thought that energy would be the best growth sector, as operating efficiencies would squeeze profit out of a relatively stagnant pool of revenue. What we saw instead was a disaster.

Instead of thriving, world-class companies like Occidental Petroleum Corp. (NYSE:OXY) cut everything they could simply to survive. Dividends disappeared. Long-term exploration plans stalled.

They dodged a bullet. And the oil patch is rarely quiet for long. Avoid it until I tell you differently.

What about technology, the darling of the pandemic era? I wasn’t thrilled with Big Tech a year ago, when the sector as a whole was struggling to deliver 10% growth. The story hasn’t brightened much.

Even if technology stocks collectively give us 15% more profit in the new year, that’s a long way from the dynamism that builds a trillion-dollar giant before your eyes. And compared to other slices of the market, it’s going to feel like molasses.

Don’t get me wrong. I love the right technology company that’s at the right phase in its life cycle. Early is good. Several of my IPO Edge positions have what it takes to join the trillion-dollar club over time.

And that’s the story of every year on Wall Street: When the years roll into decades, you can make serious money.

I’m always talking about initial public offerings (IPOs) on my Millionaire Makers radio show. Now there’s a podcast (Spotify)(Apple) as well to keep you focused on opportunities to build real wealth while avoiding obvious threats.

share on:

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader

Used by financial advisors and individual investors all over the world, is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle


DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops