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2020 is finally over.
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And frankly, a lot of investors would rather never
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speak of it again.
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The outlook for 2021 is much brighter.
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Investors broadly think it's going
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to be a good environment for global stocks,
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the worst is behind us after all.
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But last year taught us the pessimism pays.
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So what can go wrong?
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The first thing is that it's not generally a great idea
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when investors broadly agree with each other.
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And right now, they do.
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The vaccine is going to be difficult to roll out globally.
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The virus itself is still biting into the global population.
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And the damage on companies and economies around the world
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is going to take time to shift.
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If any of these things deteriorates
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more than the market currently anticipates then
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you're going to see a lot of investors
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heading for the exit from risky bets all at once.
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Central bankers saved the day in 2020
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alongside finance ministers when they
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pumped trillions of dollars into the financial system.
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The issue now is whether they can hold the line.
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If we see any signs that they might pull back
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on that support, then you could see a serious wobble
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in markets.
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We've seen this before in 2013 with the famous Taper Tantrum,
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and we could easily see it again.
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Rate hikes are basically a non-starter.
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But if you just start to hear a little bit of uncertainty,
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watch out.
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Then there's inflation.
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Now, this has been the market's bogeyman for years.
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People have been saying it's going to make a comeback ever
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since the crisis of 2008.
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And they've been wrong every time.
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But maybe this time is different.
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And if it is, you could see a real hit
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to the government bond market and, potentially, also
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to equities, too.
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It's a tail risk, but it's worth watching.
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Then there's politics.
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And in this regard, keep a really close eye on US big tech
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stocks, which really dragged the markets up
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from their lows of March last year.
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The new administration in the States
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is, some investors think, more likely to impose taxation
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and regulation on this sector.
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Now, all of this, all of the extra spending that the US
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administration might bring through,
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could be great news for different stocks -
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for small-cap stocks, for sectors that have
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underperformed over the past few months.
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But any damage to big tech, which
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makes up such a big part of the US market,
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is definitely worth watching.
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Then there's the dollar.
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It's been sliding for months, but some investors
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are starting to wonder if it could
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accelerate and really jack up other currencies
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around the world.
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At a certain point authorities in other countries
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will really start to bristle at this.
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And they might start to push back.
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So watch out, and good luck.
