What’s in store for stock markets in 2021? – HL Fund Manager’s view

It could be a while before the phrase “twenty-twenty vision” returns. It’s been a year to forget for lots of us.

No one expected a global pandemic, with record-setting recessions and unprecedented level of government borrowing to prop up economies during lockdowns.

Putting this year to one side, we look at the outlook for 2021, and what this could mean for stock markets and investors.

Remember this article isn’t personal advice. Should you be unsure if an investment is suitable for you please get in touch with one of our advisers.

All investments fall as well as rise in value, so you could get back less than you invest.

Recoveries and re-openings?

We’re not out of the woods yet – the first half of 2021 could be challenging. Mass vaccinations will take time and restrictions are likely to hang around for a while yet. I don’t think social distancing and mask wearing will last until all of us have been vaccinated. It’s more likely to last until the vulnerable have been immunised, and enough of the wider population to stop the virus spreading in a reopened economy.

Outside of the UK, we see all countries facing the same issues - how to vaccinate the population and when to cut away restrictions. Once these issues are fixed, and as more and more countries come out of the pandemic, there will be I believe an accelerating growth trend around the world. This’ll be driven by huge levels of government spending in many countries.

The outlook for the UK economy

The UK will have finally left the EU. We still don’t have a deal, and perhaps we won’t get one at all.

With so much uncertainty around Brexit, there’s likely to be companies that aren’t prepared for a no-deal outcome. But over time, any glitches will be fixed and trade between the UK and other EU countries will become smoother. That said, the damage caused from the pandemic could overshadow whatever Brexit might, or might not be about to do.

Unemployment is expected to keep rising into 2021. Lots of companies will need to reduce their staffing levels to help cut costs, and to better match the reshaped economy. This will weaken demand for goods and services, and could hold back growth to some extent.

Despite all of this, there are some positives too.

The UK housing market has thrived in 2020, mostly driven by the stamp duty holiday. The average UK house price jumped by 4.7% this year.

Will house prices fall when stamp duty is reintroduced? Possibly, but interest rates look set to stay at rock-bottom levels which should help keep demand for houses steady.

Share research – 3 UK companies that could benefit from an economic rebound

Switch to online – here to stay?

The pandemic forced businesses to boost their digital presence at unprecedented speed. Lots of companies that can’t make the switch will be forced into administration. We will see the impact on High Streets up and down the nation as a stark example of this. The need to rebrand high streets has never been more pressing.

2020 saw digital leaders performing strongly in the stock market. In the US, the tech-heavy NASDAQ far outpaced other US markets, recovering from its early stumble to reach record highs towards the end of the year.

Share research – Why an index matters to individual companies

Which sectors will perform well next year?

The news of successful vaccine trials saw a bounce-back across global stock markets, particularly across industries like airlines and hospitality. Sectors where the effect of the pandemic has been felt the most.

Will it continue in 2021? I think the direction of the market will eventually return back to the digital winners. Put simply, no one’s going to use less internet.

Technology communications like Zoom and other digital venues let companies do business without staff needing to leave the comforts of their own home. Overseas business trips and meetings could become a thing of the past. I think lots of things that used to happen, just because they always did, simply won’t happen going forward. The digital world has offered cheaper and easier alternatives.

Tough questions about how to pay for 2020 could stay unanswered for a while – governments won’t want to stand in the way of any potential economic recovery. I think the sectors worst hit by the pandemic will continue to drive the market forwards next year. Companies that continue to increase their online presence should also do well.

The HL Select team will continue to follow our strategy of investing for the long term and backing the businesses that are winning in an increasingly digital world.

Find out more about HL Select funds

The Hargreaves Lansdown fund range is managed by our sister company Hargreaves Lansdown Fund Managers Ltd.