A New Day and a New Year. How to Make Money in 2021.

January 20th, 2021 marks a new day for America and for the world. As I sat at breakfast this morning with my wife Anjou, my 2.5 year old daughter Chloe, and my 10 month old daughter Sophie, we watched history in the making as President Biden and Vice President Harris were sworn in. Knowing that my daughters will grow up in a world in which a female can hold executive office in the US brings a sense of pride and excitement to me as a father and I look forward to watching my daughters’ bright futures unfold.

Inauguration Day January 20th, 2021

As we move into a new era for the United States and into a new year, it is wise to reflect on the past and even more important to prepare for the future.

2020 was a year filled with well-known challenges including a global pandemic, a bear market, and an election fueled by strong political divide in our country. Despite all the negativity and investor fear, as show below, equity markets finished 2020 at all-time highs with the S&P returning over 18% and technology stocks up over 43% for the year. Q4 saw a change in equity leadership as small cap and value stocks (lead by financials and energy) outpaced large cap and growth stocks which have outperformed for the last decade.

So now that we are underway with a Democratic Congress and a Democratic President, what does that mean for equities?

While historical patterns never completely predict future results, market returns on average have been positive under a Democratic President with a Democratic Congress as seen in the below chart.

As seen in the next chart, although stocks do prefer congressional checks on both party presidents (aka political gridlock), a split congress has always been the worst combo for stocks.

At Old Vine Capital, we remain optimistic for equities going into 2021 and see short-term opportunities in fixed income for recently downgraded corporate bonds and other bond spread products. We expect overall stock returns to be in the high single to low double digits for 2021 with additional upside opportunities in value stocks, small cap stocks, non-US equities, and select individual technology and biotech securities.

“We expect overall stock returns to be in the high single to low double digits for 2021” — Old Vine Capital

Source: John Hancock Investment Management Market Intelligence

US GDP growth estimates for 2021 are estimated to be 4%-5% with corporate earnings per share estimates projected to rise 22%+. This economic growth combined with today’s low interest rates, political certainty, a global COVID vaccine rollout underway, hopes for a new US Federal aid bill, early stages of a new bull market, and record cash still on the sidelines creates a macroeconomic environment that remains positive for continued equity growth in 2021. Now is a good time to hold stocks.

Source: John Hancock Investment Management Market Intelligence

Expect major volatility over the weeks and months ahead and be sure you are in an appropriate asset allocation that you can stick to regardless of which direction the markets move. Do not try to time the market or day trade. Be cautious of a drastic overweight into expensive growth/tech stocks. When you chase heat, you can get burned.

If your income is from a technology company, your house is in Silicon Valley, and all your net worth is in technology stocks, be cautious!

Limit your cryptocurrency exposure to 5% or less of your liquid net worth and hold a broad basket of currencies including BTC and ETH. Remember that what goes up, can also go down. Always remember that risk and return are correlated. The highest returning stocks/asset classes can easily become the biggest negative performers overnight.

My philosophy at Old Vine Capital has always been “Focus on what you can control. You cannot control daily market volatility, you cannot control geopolitical events or macro-economics, but you can control your future by building an effective financial plan, prudently saving, and investing wisely.”

Is one of your new year resolutions to improve your financial well-being? Old Vine Capital is a registered investment advisory firm in Silicon Valley that serves as a fiduciary for clients. Let’s grow together.



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Neil Kay

Investor, Traveler, Fundraiser, Dog Whisperer, Husband, Father. Managing Partner of Old Vine Capital, a private investment advisory firm based in Austin.