Predictions of 2021’s Economy and Investing Landscape
Between COVID-19, the March 2020 stock market crash to all-time highs for a basket of stay-at-home stocks, no one could’ve predicted what 2020 had in store for us. Let’s have a little fun today by looking into our crystal balls and predict what 2021 has in store for us! At the time of writing, it is December 30, 2020. By the time you’re reading this, some of my predictions may have already come true!
Macroeconomics
COVID will last longer than most of us think. With a large portion of the population that thinks they don’t need to get vaccinated and a potential new strain of Coronavirus hitting recent headlines, COVID will unfortunately continue to dominate our lives through most of 2021.
Interest rates will continue to stay at all-time lows. With the Fed printing money (by buying bonds) and keeping short-term borrowing rates low, banks will likely be able to keep interest rates low as well.
Tech will continue to reign supreme. Everyone uses technology nowadays, and technology will only continue to improve and occupy a larger chunk of our lives. COVID has only highlighted and accelerated tech companies’ importance.
Population growth will slow due to fewer people having babies during the pandemic. This will result in a shortage in the labor market roughly 2 decades from now.
The wealth gap will continue to widen. The rich keep getting richer and the poor stay poor, especially due to the COVID crisis. The rich are able to stay invested in a thriving stock and real estate market, while the poor are struggling to make ends meet due to store closures and, therefore, job losses. Additionally, as the poor scramble to make ends meet, their education will be sacrificed and result in their being less competitive in the job market.
The student debt crisis will only worsen. Too many people are not financially able to afford sky-high tuition costs, nor are they financially literate enough to understand the consequences of taking on large amounts of student debt. The government and private employers aren’t doing nearly enough to help reduce their employees’ debt. I’m not counting on the government to pass any sort of meaningful debt forgiveness bill any time soon.
Stocks
Tesla (TSLA) will reach the coveted $1 trillion market cap. Much like the neck-breaking punch you feel when you floor a Model S in Ludicrous mode, Tesla will continue to have insane levels of volatility that will give retail investors like you and me, as well as analysts, a bit of whiplash.
Stocks will continue to reach new all-time highs. Tech will continue to experience rapid growth, while cyclical stocks (companies that rely on the economy doing well) will come into favor as the world puts the COVID pandemic in its rearview mirror and people release their pent-up demand for all things not stay-at-home.
Amazon will split its stock. Following in Apple’s and Tesla’s footsteps, Amazon will follow suit and split its stock. It will attract a fresh wave of retail investors like you and me to invest in it and bring its stock to new all-time highs.
Stay-at-home stocks will continue their meteoric rise. As I mentioned previously, I think COVID will last longer than most anticipate. Therefore, your stay-at-home winners like Netflix, Zoom, Amazon, etc. will continue to reach new heights.
Real Estate
Major tech hubs like Silicon Valley and Seattle will continue to drive sky-high real estate prices in those areas. However, I do believe prices will plateau in the next couple of years before continuing their climb over the next decade. While there are so many people fleeing high cost of living (HCOL) areas, these tech hubs will not falter any time soon. There’s no shortage of tech work to be done to create the futuristic world we’ll eventually live in. And people get paid handsomely to do it.
Suburban real estate prices will reach new highs, while rental rates in big cities will remain at muted levels. Coupled with all-time low interest rates, as more and more (tech) companies allow for fully remote work, more people will be attracted to lower cost of living (LCOL) areas where they can afford to buy a bigger, newer home and raise a family outside of a big city. Many of those destinations will likely be in states with no income taxes like Texas, Nevada, and Florida to reduce their tax burdens. Highly-compensated workers fleeing areas like Silicon Valley will take their multi-six figure salaries with them (albeit with a 10-15% pay cut), and continue to scoop up real estate like it’s nothing. Redfin predicts that 14.5 million Americans will move out of town and fuel 10% sales growth!
Final Thoughts
At the end of the day, forget about money for a second. With revolutionary efficacy and speed of creating the world’s first set of vaccines (thanks to Moderna and the Pfizer/BioNTech partnership), I’m hopeful the world will be in a better place by the end of 2021. Though there will be lasting effects of the COVID pandemic in many ways, I’m optimistic about the overall economy. I am most worried about the widening wage gap and even more worried about the widening education gap between the rich and poor. I hope that by continuing to grow both my Instagram account @buckbybuckblog and this blog (this year and beyond) that I am doing my part to help as many people get financially educated as possible.
To end on a more positive note, I find it fun to think about what our economy has in store for us in the coming year. Let’s revisit my predictions later in the year and see if any of them come true! What do you think about my predictions? Anything you would add?
