This is not a 2021 stock market prediction. As you may have heard, these are unprecedented times and blanket market predictions for 2021 are going to do us little good.
That being said, the stock market is off to a good start with the S&P 500 up 15% YTD. And 74% of the time, a strong January means a positive performance for the entire year.
But not all sectors are created equal. And now that Democrats are poised to control the house, senate, and presidency, certain sectors of the stock market are poised for explosive growth. Others will most likely get crushed.
So, which sectors should you focus on and which should you stay away from in 2021? The answer may surprise you.
Oil: This may seem like a no brainer but looks can be deceiving. Take a look at a couple of top oil ETF’s:
However, this year, they are both up over 10%, even with news that Democrats now control the Senate. Does that mean, oil is ready for some massive resurgence?
Not quite. Oil’s positive performance so far is not due to traditional supply and demand. Rather, Saudi Arabia has agreed to cut oil production a million barrels a day reducing overall supply. That is a massive cut of 1% of the world’s supply. This drove oil prices not seen since last February.
Oil may see some uplift this year once people begin travelling again. There could be an option play in there on some short-term trades but the sector is not going to be sustainable for the long term, particularly if a Democratic green agenda is implemented in the next two years (more on that in a minute).
Tech: When the news broke that Democrats won the Senate on Tuesday, no sector had a worse response than tech. This seems counter-intuitive since Democrats are often considered a party made of younger constituents and the party of innovation. However, they are also considered the party of regulation. Apple, Google, Microsoft, Amazon and Facebook all underperformed the broader market with the political news. It is very apparent that these tech giants fear any new regulation that may enhance data privacy for users.
Facebook has made mining user data to advertisers its primary source of revenue while Google and Amazon have invested a massive amount in in-home services which greatly rely on A.I. through user data.
Technology has had a meteoric rise over the past couple of years and the Democratic senate may just be the catalyst that pops that bubble.
Impact Investing and Renewable Energy: A no-brainer, right? Right. President-elect Biden has made it clear that he plans on spending $2 Trillion dollars over the next 4 years to implement a new, “Green Infrastructure.” The focus would be renewable energy, electric transportation (including Amtrak), and engineering, new, climate change resistant buildings. This spending plan is a massive tail-wind to an already high performing sector.
With news that Impact Investments account for 30% of total assets under management, this sector shows no sign of slowing down. Take a look at a couple of renewable energy ETF’s as of late:
With this type of momentum and a massive government spending plan behind it, this is one sector deserving of your focus.
Cannabis: Another no brainer, right? Right. Man, did cannabis stocks turn green this week (another pun…nailed it). Cannabis stocks such as Canopy Growth shot up 23% this week. Cronos Group grew 28%. And Tilray grew 35%.
Cannabis as a commodity has gone through massive swings. A couple of years ago as states started to legalize it, both recreationally and medicinally, cannabis stocks were all the rage. However, Cannabis companies overgrew their supply and because it is still illegal at a federal level, Cannabis had a difficult time working with banks.
Now, with states that have legalized Cannabis reporting record tax revenue (California report $307m in Q3 last year), the federal government should hopefully see the same tax opportunity at a federal level. Especially, if it can help pay for their ambitious green infrastructure.
In Summary: There is a bull market everywhere and money to be made…Regardless of who is in charge. We’ll keep you posted
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