Investor Confidence and Expectations for 2021

If you can keep your head when everyone around you is bullish... Tis the season when everyone assesses where we’ve been and where we might be going. Last week, a lot of research companies and publications explored investor confidence and expectations. Here is a brief review of the commentary being offered:

“The Great Reflation Trade of 2021: Most Optimistic Survey in its Six-Year History.” Absolute Strategy Research published its survey of probabilities, which asked chief investment officers, asset allocators, economists, and multi-asset strategists to describe their 12-month outlook for financial markets. The results the most optimistic result in six years with 81 percent of those participating saying they were bullish.

“Froth or fundamentals? What explains investors’ enthusiasm for risky assets?” The Economist wrote, “…equities have become more attractive than bonds – at first probably because bond yields fell so quickly, boosting the relative appeal of stocks, but lately thanks to the vaccine heralding the return of growth and profits, which a modest increase in yields has not offset. The rise in share prices alone, then, is probably not enough to indicate a mania…”

“The S&P 500 Could Gain Another 10% Next Year, Experts Say.” Barron’s cover article sported this optimistic headline and confidently reported, “This year brought heartache to Main Street but joy to Wall Street. Next year, if vaccines vanquish the coronavirus, as expected, and the economy rebounds, it could be a time of celebration for both.”

“Gleeful consensus on equities sparks concern over ‘groupthink’” Financial Time’s Naomi Rovnick spoke with the head of behavioral finance at a British consulting firm about exceptional levels of bullishness. He said, “‘This year has been dominated by one story, which is COVID, and this is a very new and unusual situation that financial forecasters have no pre-existing framework to use to form their views…It is likely they are cleaving to consensus more than they otherwise would.’”

No matter what you read about what’s to come, the important thing to remember is this: “No one can predict the markets. The overwhelming evidence from decades of academic research is that nobody can reliably and accurately forecast what the stock market will do,” reported Jeff Sommer of The New York Times.

Best regards,

Womack Investment Advisers, Inc.

WOMACK INVESTMENT ADVISERS, INC.
Oklahoma / Main Office: 1366 E. 15th Street - Edmond, OK 73013
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David Kostin, the Goldman Sachs chief U.S. equity strategist, wrote in a note to clients “The U.S. election is just 81 days away and represents a significant risk to our year-end forecast.” Analysts often mention the uncertainty surrounding presidential elections in the United States, and this year is sure to be no exception. However, John Stoltzfus, CIO of Oppenheimer Asset Management told clients, “Embrace the uncertainty.” His research showed that historically, elections haven’t done much to prevent stocks from going up regardless of which political party prevails. Furthermore, Stoltzfus writes, “Uncertainty usually comes with opportunity and risk—two considerations essential in making investments.” A study by Deutsche Bank showed that in Presidential election years in which the contest is thought to be “close”, stocks generally go up until a month or so before the election, then pull back a bit, and then resume their uptrend from around the election through the end of the

The shortest bear market in history is over. The Nasdaq Composite and Standard & Poor’s 500 Indices finished at new highs last week. The stock market is considered to be a leading economic indicator, so strong stock market performance suggests economic improvement ahead. There was a caveat to last week’s gains, though. One large technology company was responsible for 60 percent of the S&P’s weekly gains (0.7 percent), reported Ben Levisohn of Barron’s . The same large company is also a component of the Dow Jones Industrials Index, which finished the week flat. Without that stock, the Dow would have finished the week lower. Levisohn wrote: “The S&P 500 might have hit a record last week, but most stocks have been having bad days. On Friday, for instance, just 220 stocks in the S&P 500 closed higher for the day, and that was far from an anomaly. The S&P 500’s cumulative advance/decline line – a measure of the number of stocks finishing higher vers

There was good news and bad news in last week’s employment report. The good news was the U.S. Bureau of Labor Statistics delivered better-than-expected data about employment. In July, the U.S. economy added about 1.8 million new jobs. That’s about 300,000 more than the Wall Street consensus forecast, according to Jeff Cox of CNBC , who reported, “…there were wide variations around the estimates as the pandemic’s resurgence dented plans to get the shuttered U.S. economy completely back online. Forecasts ranged from a decline of half a million jobs to a rise of 3 million…” The flip side of employment is unemployment. The U-3 unemployment rate, which reflects unemployed people who are actively seeking a job, declined in July. It has moved steadily lower during the last few months, from 14.7 percent in April to 10.2 percent in July. The U-6 rate, which includes unemployed, underemployed, and discouraged workers, has declined from 22.8 percent in April to 16.5 percent

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