QUESTION OF THE WEEK

What will 2021 bring?

Every other week, we ask for your thoughts on a top question our portfolio managers and strategists are debating. We share the final poll results and insights.

Happy new year! 2020 is finally over. How do you see U.S. corporate earnings and stock market returns in 2021?

    Lower earnings, higher market

    Poll results: What will 2021 bring?

    Source: Blackrock Investment Institute with data from SurveyMonkey. Note: Data does not include results from BlackRock social media polls.

    48% of those surveyed see lower corporate earnings and a higher equity market in 2021 thanks to stimulus and low rates.

    21% of voters saw a bullish mix of higher earnings and a higher equity market. Just under 20% of respondents see a weaker growth rebound leading to lower earnings and a lower market. 

    How did these responses compare with those of BlackRock portfolio managers? A similar share (47%) saw lower earnings and higher markets in 2021. The biggest difference: Almost 40% saw both higher earnings and equity markets.

    Biggest surprises in 2021

    Consensus estimates point to 2021 earnings-per-share for the S&P 500 bouncing back sharply. One equities portfolio manager saw U.S. margins heading back to pre-Covid levels in the second half of 2021 as the biggest potential surprise. Cost controls via layoffs, lower wage pressure and savings from remote working could help profitability, many believe.  Just over 30% of respondents to an internal BlackRock poll expect the continued dominance of the technology and consumer discretionary sectors to surprise markets next year, while 40% expect a cyclical rebound to raise eyebrows (e.g. a rebound in retail, tourism).

    Earnings evaluation

    • Significant monetary stimulus, an improving labor market and research-related capex should all support the recovery and corporate earnings growth, said one portfolio manager.
    • Some investors look to a potential Democratic sweep in the U.S. election that could move the trend away from a multi-decade regime in which capital has been rewarded over labor.
    • The UK equity market is being held back by Brexit uncertainty and measures to reduce the spread of Covid-19, noted one fund manager. These uncertainties could lift in 2021.
    • The value factor has significantly underperformed this year, noted another – and growth companies are starting to look expensive for the first time since the tech bubble.

    Global equities still look cheap after the market rally in March, as shown by the BlackRock Investment Institute’s Market risk monitor. This reflects in part the ultra-low levels of government bond yields. Within equity markets, a high level of concentration risk remains. This reflects the growth and outperformance of the technology sector and the dwindling market size of sectors such as energy, mining and utilities as the structure of the global economy has changed. The risk remains high of a change in market leadership away from growth and toward value. 

    Looking ahead, we see corporate restructuring opportunities on the horizon. We like higher-yielding credit amid low rates and see potential return diversification for private credit investors. Private markets are relatively illiquid and not suitable for all investors but play a key role in strategic portfolios, in our view.

    Stay ahead of markets with the latest insights from the BlackRock Investment Institute.

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