2021: Inflation Returns, Pluses and Minuses for Big Tech, Globalism Grows
For all the crazy twists and turns 2020 delivered, the year is finally coming to a close. For investors, that means it’s time to start thinking about possible investment themes for 2021. Here are three to consider:
- The return of inflation
- Accelerating economic trends that help Big Tech
- Thinking globally
1. The Return of Inflation
The pandemic’s sudden onset drove prices lower early in the year, as businesses shuttered and new orders ground to a halt. Businesses (outside of those providing essential goods) hesitated to rebuild inventories, and supply chains fell into disarray. This sequence of events has cratered year-over-year inflation readings, meaning that we’re entering 2021 with very low comparisons. In our view, this potentially means much higher year-over-year inflation readings by summer 2021 than what we’ve been used to seeing.
What’s more, the coming year will almost certainly deliver waning economic risks associated with the pandemic’s spread. By some estimates, a majority of Americans who want the vaccine will have had access to it by the summer. That means the approximately $1.3 trillion in household savings – which may increase with a new round of stimulus checks and unemployment benefits – could potentially result in a spending spree to coincide with the return of “animal spirits” and physical engagement with the economy. From a supply-demand standpoint, excess demand may end up far outstripping available supply, putting upward pressure on prices.1
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Consumers are responding in many different ways to this current pandemic. It’s impossible to predict exactly how the future will pan out or how the market could be affected in 2021, but you can try to prepare for what’s to come. Knowing your net worth is a great place to start as it is critical to your financial well-being and can help you prepare for what’s ahead in the future.
If you have $500,000 or more to invest and want to understand how to measure your net worth, download our guide Measuring Your Net Worth.2 Simply click on the link below to get your copy today!
Download Zacks Guide, Measuring Your Net Worth2
One interesting feature of rising inflation in 2021, in our view, may be that nominal bond yields do not go up materially (as they normally would with rising inflation). Higher inflation historically has been a net negative for investors, as it generally led to higher interest rates and therefore compressed valuations for stocks (given the higher discount rate). But in 2021, we already know that the Fed is ready to see inflation tick higher, and that higher inflation will not necessarily trigger raising rates or changing their bond purchase regimen.
2. Accelerating Economic Trends Help Big Tech, But Regulatory Efforts Hurt
In Q4 2020, Google was dealt not one, not two, but three major lawsuits from the Department of Justice, Attorneys General from 11 states, and Attorneys General from 38 states, respectively. Meanwhile, Facebook faces an antitrust lawsuit on par with the Microsoft suit in the late 1990’s, where the Department of Justice is attempting to break up the company. Needless to say, the headwinds against Big Tech are growing stiffer, and the efforts remarkably are also bipartisan.
This comes in a year when technology companies enjoyed among the highest revenue, sales, and free cash flow growth (in aggregate), coupled with very strong equity market performance. It also came in a year when the transformation to the “digital economy” went into overdrive, with businesses across every sector accelerating efforts to build digital infrastructure and to reach customers online. What lies ahead for technology companies will be a key story in 2021, but investors might reasonably expect that regulatory efforts will increasingly start to make earnings growth of years past more difficult to attain.
3. Keep Thinking Globally
The United States is poised for breakout economic growth in the second half of 2021, in our view, but many other countries are already there. Australia, South Korea, New Zealand, and China have all but squashed out the Covid-19 pandemic, and their respective economies are firmly on the path back to sustained recovery.
With China in particular, the rivalry with the United States appears here to stay. Nowhere will the competition become fiercer than in the realm of technology, as both countries seek self-sufficiency in critical industries of the future, like Artificial Intelligence, semiconductors, and 5G. Investors would be wise to look both ways when it comes to investing in growth trends, as the two economic superpowers chart their own courses.
In Europe, the European Central Bank has committed to more stimulus, and the bloc’s recovery is said to focus more on green infrastructure and digitization spending. In terms of going where the liquidity is, Europe will certainly be a place to look, in our view.
The Importance in Knowing Your Net Worth – The market was constantly changing and impacted in 2020 due to various events. While we may not know how the market will be affected long-term, knowing your net worth can be critical to your financial well-being and can help you prepare for what’s ahead.
Calculating your net worth may give you a better idea of where you stand in terms of your long-term investment goals. If you do not currently know your net worth, then now may be a great time to calculate it.
If you have $500,000 or more to invest and want to understand how to measure your net worth, download our guide Measuring Your Net Worth.3 Simply click on the link below to get your copy today!
2 ZIM may amend or rescind the “Measuring Your Net Worth” guide for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the “Measuring Your Net Worth” guide for any reason and at ZIM’s discretion.
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