Stock market predictions are a risky business. While financial experts are more attuned than ever to the shifting global economy and the way that it affects investors, no projection is ever a sure thing.

That was especially true in 2020. When experts made their annual stock market predictions toward the end of 2019, the full effect of the coronavirus pandemic on international business was unknown. Some predicted the dramatic effects COVID-19 had on the economy; others underestimated them. Those who predicted a full-on recession or an instantaneous recovery were each off the mark in their own ways.

That said, many stock market predictions for 2021 are a mix of pragmatism and very measured optimism, as the world hopes for more economic recovery and putting the pandemic behind them. Here are some of the most talked-about, notable stock market projections for the new year.

What are investment experts predicting?

Stock Market Forecast for 2021

Low-Interest Rates Will Spur on Investments

The Federal Reserve sets interest rates to establish the amount that creditors charge for loaning money or offering credit. Interest rate adjustments affect everything from home loans and auto purchases to consumer confidence and stock market investments.

At the moment, the Fed’s interest rates are comparatively low. Since COVID-19 had a slowing effect on the economy, the Federal Reserve has pledged to keep interest rates very low until at least the end of 2023. Low-interest rates are set to generate more spending, putting more cash flow into the economy.

This situation makes the stock market much more attractive for investors. If more money is moving in the economy, then investors have more disposable cash on hand for investment opportunities. That means that they’re a little more encouraged to fund startups or small-cap companies and to buy into larger companies with reliable growth and consistent profits or dividend payouts.

Stock market projections can be difficult to make with the prospect of low-interest rates and controlled inflation through three years. In the short run, the trading volume should be higher since there’s more money to invest. That should account for some significant hikes in stock value down the road, as the economy improves and the Feds look to increase rates again in two or three years. Now is the time to jump on stocks with positive outlooks for growth through 2023 and beyond.

COVID-19 Recovery Will Drive Most Sectors

The coronavirus pandemic was a singular event that impacted the economy in a hard way in 2020. But despite a significant market crash in March, the stock market recovered in a surprisingly orderly fashion through the end of the year.

Now, the focus is on providing and distributing an effective vaccine for COVID-19. While progress has been made, there’s still some uncertainty about how and when the vaccinations will be administered throughout 2021.

The standard assumption is that a vaccine will be widely available sometime in 2021. After that happens, guidelines on lockdowns and social distancing will likely relax, which should spur a lot of economic activity as people start circulating and spending money on restaurants, recreation, and consumer goods. That trend will result in short-term gains on the stock market.

Companies that are working on the vaccine and other activities related to recovery should experience exceptional gains in value. Forbes predicts that bioprocessing companies Thermo Fisher Scientific and Avantor, for example, could see a 15% boost in sales.

Some smaller companies working on individual components — containers, stoppers for vaccine bottles, and so forth — are in line for a similar boost, as are large companies like FedEx who will be responsible for transporting the vaccine around the world, and drugstore chains like CVS or Walgreens that will carry the vaccine.

In any event, just as it did in a rocky 2020, COVID-19 will dictate many stock market projections throughout 2021 — first through vaccine distribution, and then through the potential recovery period.

Tech Stocks Will Lead the Way

Out of all of the business sectors in the stock market, technology companies experienced the most significant growth in 2020. Again, the impact of COVID-19 had a lot to do with that uptick.

Consumers depended on e-commerce companies like Amazon and Shopify as the lockdown restricted shopping at traditional outlets. Communications applications like Zoom benefited from the rise in working from home. Streaming services like Netflix, Disney+, and Roku became primary sources for entertainment and may have permanently changed the way that customers consume movies and television shows.

We expect tech stocks to continue their ascent, even as some industry onlookers warn that the tech bubble may again be blowing up too high, the way that it did during the dot-com bust of 2000. But market conditions are much different now than they were then. Speculators are a little more disciplined than they were 20 years ago, and some experts believe that the steady growth of the digital marketplace is more manageable now than it was in the crazy days of 1999 and 2000.

Social media companies like Facebook and Twitter may have had a rough go in 2020, due to the volatile political landscape and controversies during the year. But that narrative didn’t impact their overall performance over the year.

Like the rest of the stock market, Facebook and Twitter experienced year-over-year gains in their share prices. As the social media market expands, though, look for smaller social entities like Pinterest and Snapchat to make gains in 2021 as alternatives to the major players. Expect more investors to look into tech stocks, especially with the imminent introduction of 5G in broadband networks.

What are investment experts predicting?

Small-Cap Companies Should Overperform

Small-cap companies generate between $300 million to $2 billion in overall worth, a fraction of what large- and medium-cap companies make. But in certain times, small-cap companies are sources of innovation and therefore can experience tremendous short-term growth. This year may be one of those times.

The scramble for a COVID-19 vaccine is one reason that small-cap companies may face tailwinds in 2021. The prospect of a new American stimulus package should also play a part. Newly elected President Joe Biden’s $1.9 trillion proposal includes relief measures that could play directly in the favor of small companies since there’s a perception (rightly or wrongly) that his administration will be more empathetic to small, local businesses than it is to larger, blue-chip companies.

Market turbulence in 2020, which affected small-cap stocks to a great extent, may prove to be the springboard for improvement in 2021. Many companies are working with lower operating budgets this year, an unfortunate byproduct of dips in revenue and layoffs during the coronavirus outbreak.
But such downsizing sets up many small-cap companies to improve net profits in 2021, and those companies who emerged from the first COVID-19 wave intact may experience a welcome period of growth as 2021 progresses.

According to U.S. News & World Report, small-cap stocks still outperformed larger- and medium-cap stocks in 2020. The Russell 200, a small-cap index, showed returns of 20% last year, whereas large- and mid-cap indexes like the S&P 500 and MidCap 400 returned 16.3% and 13.7%, respectively.
Successful economic recoveries tend to especially boost small-cap companies. Barring unforeseeable events, economic improvement should continue in 2021, and smaller companies should therefore make advances in the stock market.

Healthcare Companies Should Thrive

Due to the pandemic, healthcare stocks were very carefully monitored in 2020 as the race for a COVID-19 vaccine dominated the news in the healthcare landscape. That should continue to be the case in 2021, as lab companies, diagnostic specialists, and pharmaceutical retailers rally to release the new vaccine on a wide scale before or during the summer.

More factors position the healthcare market for gains in 2021. Besides COVID-19, an aging population is the most pertinent component affecting the healthcare industry at this moment. As citizens in the U.S. and other developed countries grow older, the need for preventative and surgical medical services and products increases. Motley Fool predicts that companies like Intuitive Surgical, which provides robotic surgery services, will see gains in value as the demand for these products and procedures grow.

Asian Companies May Grow in Value

According to Bloomberg, Asian stocks moderately outperformed U.S. stocks in 2020. Bloomberg expects that growth to continue in 2021. Their stock market projections indicate the MSCI Asia Pacific Index should grow by 9% this year, as compared to estimates of 8% growth in the S&P 500.

Despite rifts with the United States in the past few years over COVID-19 and tariffs, Chinese companies saw a huge jump in new investors in 2020. CNBC reports that Chinese businesses saw 1.62 million new investors last year, more than double the amount reported in 2019. Other Asian economies like South Korea and Hong Kong garnered more interest from stock purchasers last year, as well.

Experts believe that Asia’s active participation in building a green economy, controlling climate change, creating disruptive technology, and continuing to battle COVID-19 will spur economic growth in the Asian market in 2021.

One possible hindrance is increased attention on federal regulation, especially in China where authorities are more active in anti-trust legislation and probing monopolies. But with momentum on its side — and the prospect of more connectivity with other global market forces — Asian stocks may see a sizable jump in earnings in 2021.

Stock Market Forecast for 2021: Sustainability Gains Attention and Support

Merrill reports that companies paid more attention to environmental responsibility in 2020. That trend is expected to continue in 2021, as investors are more likely to take a company’s approach to sustainability into account when deciding where to place their funds.

Hopes for better accord between countries fighting climate change and environmental decline — especially if the U.S. successfully resumes certain environmental initiatives — will bring more attention and capital to companies with superior records in “environmental, social and governance” factors.

As the catalytic changes COVID-19 has forced upon the economy continue to unfold, companies that manage to adapt and pursue transitions to sustainability may be seen as better bets for ongoing success.
This trend points to advantages for companies specifically working toward environmental progress, like wind-powered and solar energy, and businesses that work more diligently to operate in sustainable ways.

Stock Market Forecast for 2021: A Few Potential Risks

There’s good reason to be optimistic about securities in 2021, but experts have issued a few warnings about some trends and obstacles that may take certain investors by surprise during the year. worries about shareholder overconfidence. Sentiment can be a massive driver in rapid stock market growth, but especially among inexperienced or new investors, that buoyancy can overtake rational analysis and increase the risk of a bubble burst. As the stock market improved during the latter half of 2020, optimism ran rampant that full recovery was underway.

While there’s a great reason to believe that the recovery is indeed in effect, investors will need to pay more heed than ever to fundamental analysis and reason. Most importantly, they need to recognize marketplace shifts and time their investment reactions more effectively. They should not overreact to sudden but isolated fluctuations and should take a more nuanced approach about the timing when they want to purchase and sell their holdings.

In these situations, it’s always wise to keep an eye on the major indexes, especially the Dow Jones Industrial Average, S&P 500, Nasdaq, and some of the higher-performing mutual and exchange-traded funds. While we’ve certainly experienced major drops and corrections before, those leading indicators proved to be reliable in 2020. Investors who tracked well against those benchmarks weathered the economic mini-crises better over the course of the year.

As always, maintaining a diversified portfolio is a key to mitigating risk, no matter what the prevalent economic conditions may be. Investors in 2021 should continue to pursue stock holdings in as many varied companies and business sectors as they can.

What are investment experts predicting?

Gorilla Trades: Data-Based, Proven Stock Market Projections

No matter how the stock market plays out in 2021, Gorilla Trades will continue to provide investors with sound, heavily researched stock market predictions about the securities with the most growth potential. To find out more, sign up for a free, no-risk trial today.