Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

5 Financial Market Surprises in 2021

Stock-Markets / Financial Markets 2021 Jan 07, 2021 - 03:47 PM GMT

By: Jared_Dillian

Stock-Markets

Plenty of people made predictions for 2020, with hilarious results.

So for 2021, I am going to give you my list of surprises instead.


Surprise No. 1: There Will Be No Surprises

That’s it. That’s the surprise—there will be no surprises! 2021 will be a boring year.

Stocks will go up a boring amount, bonds will drop a boring amount, and there won’t be any crashes or any melt-ups. Maybe volatility will be low and stable. Maybe there will be nothing interesting out of the Fed. Maybe it will just be a profoundly boring year.

Of course, we still have to get the vaccine distributed, and there will be some hiccups along the way. We also have a major transition of power and some different legislative priorities. But maybe the market just takes it all in stride, and 2021 is a one-way ticket to Dullsville.

Surprise No. 2: We Will Have Higher-Than-Expected Inflation

Of course, this wouldn’t be a surprise to any of my newsletter readers, since I have been carping on the higher inflation theme for some time. But I think it would be a surprise to the man on the street.

The theory here is that we get an increase in money velocity from the fiscal side—all the PPP loans, enhanced unemployment benefits, and stimulus checks have added to household savings. And more stimulus appears to be on the way. Then, when the vaccine is distributed, that stored savings will be released into the economy with explosive effect.

More money chasing the same amount of goods. That is the theory.

What level of inflation would be a surprise next year? We’re at about 2%. So, 4% wouldn't just be a surprise… 4% would be some sticker shock that might get the Fed moving a bit earlier than anticipated.

Surprise No. 3: The Great Moderation

We had 12 years of relentless political polarization, and now the process is starting to run in reverse. Politics will become less polarized, and people will move toward the middle.

You probably saw that AOC and other progressives have been shut out of key committees by the moderate Democrats in Congress. This is part of the moderation.

You’ve seen celebrities like Matthew McConaughey describe themselves as aggressive centrists, calling out the polarization on both sides. McConaughey, by the way, has a lot of influence and has kept his reputation intact by mostly staying apolitical.

We’ve reached peak polarization, and now we’re going to start to move toward the middle. Social media still feeds polarization, but perhaps we’ll see social media has less influence in the years to come.

The election, by the way, was the product of our subconscious desires—faced with two seemingly polarized choices, voters unwittingly went down the middle, which is where we’ll stay for a while.

As I’ve said before, moderation is good for asset prices—look at the 1950s and 1990s.

Surprise No. 4: Oil Prices Could Go Up a Lot

If you’re paying $2.50 for gas, it could be $3.25 at the end of next year. Again, not a surprise if you’re a faithful reader, but this will also be a surprise to the man on the street.

A lot of supply—a lot—has been taken offline, and demand is about to skyrocket once the vaccine has been distributed. Everyone I know is talking about traveling.

Andrew Sullivan, who used to write for New York Magazine, recently said this in his Substack:

"Next year is going to be epic. It will be a year of rapid economic growth, extraordinary medical triumph, huge psychological relief, mind-numbing political normalcy, and pent-up social liberation. It will be lit. The summer will be remembered as the most hedonistic since the 1980s. There will be parties; there will be orgies; we will drink and do drugs; we will travel in unprecedented numbers; and after a grim year of withdrawal, fear, anxiety, and solitude, we will become human again."

Can’t agree more.

Surprise No. 5: The Fed Starts Moving in a Hawkish Direction Prematurely

Currently, the market is pricing in the first Fed hike in 2024. I tend to think we will get it sooner than that. If that’s true, there will be some great trades to put on.

Maybe it’s because of inflation, or maybe it’s because of asset markets heating up.

How will the Fed tighten? Well, it could stop buying junk bond ETFs. Or scale back corporate bond or mortgage-backed security (MBS) purchases.

Maybe it stops QE altogether. This would certainly be a surprise!

Of course, it is unlikely, but that’s the definition of a surprise. It’s unlikely because the Fed has explicitly said that it is willing to tolerate higher inflation, but maybe its reaction function changes.

Keep in mind that even the slightest slowdown in monetary easing is going to spook the market—and then we won’t have a boring year anymore.

Jared Dillian writes the free investment newsletter The 10th Man for Mauldin Economics. Subscribe here.

By Jared Dillian

© 2021 Copyright Jared Dillian - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in