If you've grown tired of reading about new record highs on the Nasdaq Composite (NASDAQ: .IXIC) you may want to skip ahead a bit.
But don't skip too far!
We'll get back to the increasingly positive outlook for shares on the S&P/ASX 200 Index (ASX: XJO) shortly.
First, however, the tech-heavy Nasdaq gained 0.5% yesterday (overnight Aussie time). That means…wait for it…it closed at yet another new all-time high.
Year to date the Nasdaq is now up 41%. That's despite the index crashing 30% from 19 February through to 23 March.
In case you're wondering, following yesterday's gains, it's now up 85% from the 23 March low.
"Buy stocks"
The US Federal Reserve provided some of the tailwinds pushing the Nasdaq to new record highs.
Yesterday, at the Fed's last meeting in 2020, the world's most influential central bank opted to continue with its monthly bond purchases to the tune of at least $120 billion (AU$160 billion).
Fed Chair Jerome Powell said the bank will continue its unprecedented level of bond purchases until inflation and employment demonstrate "substantial further progress".
Commenting on the Fed's meeting, Neil Dutta, head of US economic research at Renaissance Macro Research, said (quoted by Bloomberg):
The Fed marked up growth in each of the next two years, marked down unemployment, and marked up core inflation. Despite this, they don't expect to move rates. Good for risk appetite. Buy stocks.
Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey, also pointed to the expectation of low rates for longer supporting share prices (quoted by the Australian Financial Review):
To the extent that we are seeing a slight rise post the meeting, it likely reflects continued confidence on the part of investors who believe low rates for an extended period provides support to stock prices even at these elevated levels.
Here in Australia (if you skipped ahead, you should start reading again!), we can expect similar long-term share market support from the Reserve Bank of Australia (RBA).
Governor Philip Lowe has repeatedly indicated that interest rates will most likely remain at rock bottom levels for the next 3 years. And the RBA's own quantitative easing (QE) program continues apace.
Which helps support the growing consensus that next year will be a very different year for the ASX 200. And that perhaps, in 2021, US investors may be waking up to regular headlines trumpeting yet another new record high for Australia's top 200 listed companies.
ASX 200 share price and dividend growth forecasts
It's more than low rates, QE, and continuing fiscal support from the Australian Government that has many analysts forecasting an outperformance from the ASX 200 next year.
It's also that the ASX 200 is far less dominated by technology shares and far more populated with cyclical shares. These are shares, like the banks and miners, that tend to do well when the economy is growing.
With expectations that the rollout of COVID vaccines will drive a strong global economic recovery in 2021, and with Australia's own economy well-positioned for growth, ASX 200 shares could take the spotlight.
As Bloomberg reports:
Strategists from AMP Capital Investors Ltd. and [Commonwealth Bank's] Commsec expect the local benchmark [ASX 200] to reach a record high in 2021, while Macquarie Group Ltd. forecasts double-digit returns amid a recovery in earnings on economic stimulus and rising commodity prices.
The ASX 200 reached its previous record close on 20 February. Although it's gaining again today, the index is still down 6% from that all-time high.
Morgan Stanley and Macquarie are also both bullish on their outlook for the ASX 200 in 2021. They forecast average earnings for the top 200 companies will increase 20% year on year.
According to Shane Oliver, the head of investment strategy at AMP Capital:
Just as 2020 was dominated by the pandemic and this determined the relative performance of investment markets and stocks, 2021 is likely to be dominated by the recovery.
Oliver added that ASX shares are "likely to be relative outperformers".
And in good news for ASX income investors, Oliver forecasts, "The dividends will start to go up again as we go through 2021, as banks and others say 'well, things haven't been as bad as we thought'."
Emilio Gonzalez, CEO of global investment management firm Pendal Group Ltd (ASX: PDL) has a laundry list of reasons for investor optimism in 2021. That includes Australia's enviable position with very limited virus cases as the world moves to reopen.
In the AFR's annual Chanticleer CEO Outlook Poll, Gonzalez says:
Whilst it has been an extraordinary and tough year, there is every reason to be optimistic for 2021. Australia is on the path to recovery and ahead of the world in that respect. We should seize the opportunity and not be too risk averse despite the current uncertainties.
Companies with strong balance sheets and in a strong cashflow position should demonstrate the courage of their convictions and invest where they see an opportunity to grow their business.
As 2020 winds to an end, here's hoping that this time next year investors around the globe will be waking to yet another headline announcing new all-time highs for the ASX 200.
