Survey: Top market experts say stocks likely to continue bull run in 2021

1
Spencer Platt/Getty Images
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

With the stock market near all-time highs, investors have enjoyed a solid run in 2020, even with some major bumps along the way. Higher government spending and near-zero interest rates have cushioned the economic blow of the COVID-19 crisis and boosted investors’ optimism. Despite the run higher, Bankrate’s Fourth-Quarter Market Mavens survey of top analysts reveals that stocks are expected to climb nearly 9 percent in 2021, about in line with historical returns.

These market watchers have become somewhat more optimistic than they were in Bankrate’s third-quarter survey when they expected stocks to rally by about 7.5 percent over the next 12 months. A sustained market rally, the resolution of uncertainty around American elections and the advent of COVID-19 vaccines seem to have made a brighter outlook more feasible.

“After a year like none other, it is natural and even appropriate to expect that 2021 should mark a return to normal as vaccines are more widely administered,” says Mark Hamrick, Bankrate’s senior economic analyst.

Bankrate’s survey asked the 10 experts where the market would go in the next five years, where the 10-year Treasury would be in a year, and whether U.S. stocks are a better bet than global stocks. The survey also queried them on whether the market was accurately pricing inflation and whether they saw a disconnect between Main Street and Wall Street.

Key takeaways:

S&P 500 forecast for 2021: Experts see rise of 8.9 percent

After the market’s performance in 2020, the finance pros were notably upbeat about the Standard & Poor’s 500 index over the next 12 months, expecting the index to climb 8.9 percent.

From the index’s close at 3,722.48 at the end of the survey period, the average analyst expects the S&P 500 to close next year at a price of 4,053. The estimates ranged from 3,699 to 4,225, with only one analyst expecting the market to fall (and then only modestly).

This expected rise sits in line with the market’s long-term average annual return of about 10 percent.

“We don’t know how much of the so-called reopening is already priced into stocks,” says Hamrick. “Both over the next year and in succeeding years, the safest bet among market pros is to say things will be more typical than what we’ve recently experienced.”

Survey respondents have become upbeat about the forward 12 months after the market’s plunge early in the year. While the first-quarter survey showed analysts expected a 22 percent gain, second-quarter results showed a noticeably downbeat 1 percent estimate. Expectations bounded higher in the third quarter survey, to a 7.5 percent forecast over the next 12 months.

Analysts more optimistic about the market’s five-year returns

Similar to how they’ve ratcheted up their return expectations over the next 12 months, survey respondents are also more bullish on the market’s prospects over the next five years.

  • 40 percent of participants expect stocks will perform in line with historical averages.
  • 30 percent said stocks would perform higher than average.
  • The remaining 30 percent figure that stocks will perform below their long-term average.

It’s the first time this year that a plurality of our analysts expected stock returns to be in line with history. And to frame the results another way, 70 percent of the analysts expected stocks to perform at their long-run average or better.

As the year has marched on – and as stocks marched higher – the number of bearish analysts in Bankrate’s surveys declined, from 61 percent in the second quarter to 30 percent in the latest survey. Conversely, the number of respondents expecting average and above-trend results has climbed in successive quarters.

And for more perspective, in the 2020 first-quarter survey 75 percent of respondents expected above-average growth for the next five years.

The survey respondents pointed to a few main reasons for their bullishness.

“Central banks supplying liquidity point to real assets and equities outperforming,” says Kim Forrest, chief investment officer, Bokeh Capital Partners in Pittsburgh.

“The low interest rates that companies are currently accessing in the marketplace will fuel higher margins and better earnings growth than markets are currently anticipating,” says Wayne Wicker, chief investment officer, Vantagepoint Investment Advisers in Washington, D.C.

Others are less optimistic about stocks, especially over the near term, and expect a choppy ride.

“The volatility over the next 12 to 24 months may not result in much progress for equities. This will bring down the five-year number,” says Chuck Self, chief investment officer, iSectors, an ETF strategist based in Appleton, Wisconsin. He expects five-year returns to be lower than normal.

Wicker sees near-term choppiness as well, but expects above-trend growth from equities. “While short-term volatility has the potential to register shorter-term losses, the long-term trend will be higher,” he says.

Investors shouldn’t get too caught up in timing these forecasts, however, lest they miss the longer-term move higher in stocks. Stocks still have an enviable track record of returns, so even below-trend growth may still be much better than what investors can find elsewhere.

“For those investing for retirement, the approach should be something akin to slow and steady wins the race,” says Hamrick. “Bankrate surveys have consistently found failure to save for retirement ranks among top financial regrets among individuals. The way to avoid that sad outcome is to be focused and methodical with long-term savings and investing, including by participating in an employer-provided 401(k) when possible.”

Experts divided on whether U.S. or global stocks would perform better, but favor value stocks

The analysts surveyed by Bankrate were largely divided on whether U.S. stocks or global stocks were likely to outperform over the next year. However, a slight plurality favored global stocks.

  • 40 percent of participants favored global stocks
  • 30 percent favored U.S. equities
  • 30 percent said they expected returns to be about the same

For context, in the third-quarter survey, experts favored global stocks, while they were evenly divided in the second quarter. U.S. stocks were the strong favorite in the first-quarter results.

However, when discussing the performance of growth stocks relative to value stocks, analysts decidedly expect value stocks to outperform growth. In fact, growth stocks didn’t get a single vote in the fourth-quarter survey.

Half of the survey’s respondents believe value stocks are more likely to provide greater returns over the next year, while the other half expects growth and value stocks to fare about the same.

Previously, growth was favored in all three of this year’s earlier surveys, but the proportion of analysts favoring value stocks has climbed in the last few quarters.

“Value should – ‘should’ being the operative word – outperform growth if the U.S. economy performs according to a script based on the success of vaccination efforts,” says Patrick J. O’Hare, Briefing.com chief market analyst.

“Value should improve on the re-opening trade, but embedded secular growth trends are likely still intact,” says Eli Powell Niepoky, chief investment officer, Berman Capital Advisors in Atlanta. Niepoky expects the returns of growth and value stocks to be in line.

And given the strong performance of growth stocks this year – many of the big tech names such as Amazon, Apple and Microsoft drove the S&P 500 higher in 2020 – it may be time for value stocks to outperform for a bit.

“The relative percentage of growth’s outperformance is unsustainable,” says Sam Stovall, chief investment strategist at CFRA Research in New York City. Stovall is expecting value to perform better.

“There is a lot of pent-up consumer demand that will be ready to be spent if there is a reopening next year,” says David Wagner CFA, portfolio manager, Aptus Capital Advisors in Fairhope, Alabama. Wagner expects value stocks to outperform.

“Consumer savings are $1 trillion higher than where they were at this time last year (thank stimulus),” he says, and that should power the economy if all goes well. “If this capital is released, you can continue to see some type of cyclical rally, which benefits a value tilt.”

Analysts expect 10-year Treasury yields to climb

Treasury yields plummeted earlier this year, as the Federal Reserve slashed interest rates to near zero and investors raced to the safety of Treasurys, driving down their yields. The Fed has promised to stick to its near-zero rate policy until at least 2024.

But how will rates on the 10-year note fare over the coming year? Our analysts expect rates to perk up, though not substantially on average.

The survey’s consensus estimate for the 10-year Treasury yield over the coming year is 1.2 percent, compared with 0.94 percent, where it stood at the end of the survey period. Estimates ranged from 0.9 percent to 1.75 percent, though 7 of 10 analysts see the yield hitting at least 1 percent.

For comparison, in Bankrate’s third-quarter survey, analysts expected the 10-year yield to be at 0.87 percent one year out, while the second-quarter survey had a nearly identical 0.86 estimate. Meanwhile, first-quarter estimates were 1.39 percent.

Most agree with the market’s expectations about inflation

Bankrate threw out some wild-card questions to survey participants, and asked them about their expectations for inflation over the next 12-18 months. Did they think the market was pricing inflation in properly, underpricing it or overpricing it?

Analysts were largely in agreement that the market was pricing inflation correctly:

  • 70 percent say the market is factoring in inflation “about right.”
  • 20 percent say the market is “underpricing” inflation.
  • 10 percent say the market is “overpricing” inflation.

O’Hare figures the market is underpricing the risk of inflation after inflation has been under target for the better part of the last decade.

“Money supply has increased tremendously and is at the ready to be deployed in a recovering economy that should feature the unleashing of pent-up demand for goods and particularly services in a services-driven economy that is powered by consumer spending,” he says.

Scott Clemons, chief investment strategist, Brown Brothers Harriman, thinks the market is underpricing the chance of inflation: “The combination of deficit spending and Fed balance sheet expansion are ultimately inflationary, although that risk is not likely to materialize until economies and end demand recover.”

Others expect the low-inflation trend of the last 10 years to continue.

“Monetary stimulus has kept the economy alive, but has been ineffective at sparking even a little inflation,” says Michael K. Farr, CEO of Farr, Miller & Washington, LLC in Washington, D.C.

Just one analyst, Kim Forrest, figures the market is overpricing the risk of inflation. “Employment and rising wages enable inflation,” she says. “I don’t see either of these things if the Biden administration is Obama 2.0, which is what it looks like right now.”

Many see disconnect between Wall Street and Main Street

Bankrate’s second wild-card question focused on a perceived disconnect between Wall Street and Main Street and whether these experts think that it exists.

“There’s been a lot of focus in recent months on the so-called disconnect between Main Street and Wall Street,” says Hamrick. “With about half of households suffering a decline in income this past year, the pandemic has claimed tolls in lives and personal finances.”

Despite widespread job loss, especially in certain industries such as hospitality and leisure, the stock market seems to have shrugged off the bad news and has risen to new all-time highs.

“At the same time, many investors have been looking past the current situation to better times ahead,” says Hamrick. “The pandemic has forced rapid innovation and change even amid the challenges, accelerating the sorting out of winners and losers.”

The survey revealed that 60 percent of respondents believe there is a disconnect between the two, while the remaining 40 percent said they don’t see a disconnect.

“While there appears to be a significant difference between the capital markets and the economy, the current environment reflects the forward-looking mechanism of equity markets,” says Wicker, who does not think there’s a disconnect.

“Unlike traditional recessionary environments, investors recognize that the drivers of the current situation are in the process of reversing as we get a vaccine into global populations,” he says. “This explains the significant resumption of prices in many sectors such as consumer discretionary and financial service companies.”

Clemons agrees, saying, “We saw the same ‘disconnect’ coming out of the global financial crisis in 2009.”

But others point out how much individuals and small businesses are suffering.

“The major indices are at record highs. There are more than 20 million people claiming some form of unemployment benefits,” says O’Hare. “Enough said.”

Wagner thinks there is a disconnect and says that “small businesses need capital to stay afloat” and adds that “the labor market is more dire” than what the market is factoring in.

Although the market is forward-looking, many issues need to be sorted out before the economy is running at full bore again, with full employment and take-home pay rising to pre-crisis levels.

Methodology

Bankrate’s fourth-quarter 2020 survey of stock market professionals was conducted from December 9-17 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Chuck Carlson, CFA, CEO, Horizon Investment Services; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Chuck Self, chief investment officer, iSectors; Wayne Wicker, chief investment officer, Vantagepoint Investment Advisers; G. Scott Clemons, chief investment strategist, Brown Brothers Harriman; Michael K. Farr, CEO of Farr, Miller & Washington, LLC; David Wagner CFA, portfolio manager, Aptus Capital Advisors; Sam Stovall, chief investment strategist, CFRA Research; Eli Powell Niepoky, chief investment officer, Berman Capital Advisors; Patrick J. O’Hare, Briefing.com chief market analyst.

Written by
James Royal
Senior investing and wealth management reporter
Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.
Edited by
Senior wealth editor