I was reviewing my first several columns of 2020 to see what I was focused on early last year. Obviously, there was no mention of the pandemic or its affects simply because it had not happened yet. We really had no idea what 2020 would bring and were blindsided by the unthinkable. We've been immersed in it ever since and it has affected nearly every aspect of our lives
As devastating as it has all been, the economy and markets have been incredibly resilient. That's no doubt been fueled by massive amounts of government spending, and exceedingly low interest rates, but once we break free of this pandemic you've got to wonder about the potential economic and market fallout. To that end, here are a handful of predictions for 2021:
1. Interest rates will move higher. Who would have imagined an environment where 30-year mortgage rates were at 2.5%? The Federal Reserve announced in September that it expects rates to stay near zero through 2023, and we'll see if they can pull that off without wreaking havoc. I have my doubts, and agree with Real Money Pro's Mark Sebastian's prediction in his column that rates will rise, and bonds will suffer in 2021.
2. This environment may bode well for precious metals. We began 2021 with gold at $1900, and silver at $26.40/ounce. The ever-increasing national debt may continue to drive some money into metals. There seems to be little, if any, will in either political party to address the debt. I am afraid the ship may have sailed on this issue.
3. Value will make a comeback. Growth has trounced value, in large, small and microcaps, in the cumulative one year through 10-year periods by a fairly wide margin. It was more pronounced in 2020 then I can recall, with the Russell 1000 Growth Index (up 38.5%) outperforming R1000 Value (up 2.8%) by 35.7%. Within the Russell 2000 the gap was 30%, and within the Russell Microcap Index, it was 33.8%. We've been to this rodeo before, and sooner or later will see a regime change. Why not in 2021?
4. Republicans will hold the Senate. My election predictions have been hit or miss over the years, but I believe the Republicans will win at least one Senate seat in Georgia in tomorrow's election, and hold onto the Senate.
5. No major tax legislation will pass in 2021. The Biden plan, which among other things, calls for essentially doubling the capital gains tax rate for those making over $1 million, will not see the light of day. It may seem, on the surface to have some populist appeal because many believe it would only affect those with very high incomes. However, it could end up hurting anyone with a 401K, IRA, or other market related savings, regardless of income, given potential selling pressure, as those affected by the higher rates take action. I stand by this prediction, even if I am wrong about the Georgia Senate prediction.