US fundie predicts 25% share market gain in 2021

Could we be seeing a 25% gain for US shares or the ASX 200 next year in 2021? This US fund manager thinks it's a possibility.

| More on:
asx share price boosted by us investment represented by hand waving US flag across winning athlete

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Since we are well and truly now in the fabled 'twelve days of Christmas', many investors are starting to turn their attention to the year in front of us, and what tidings it might bring. After such a year in 2020, it's hard to know what 2021 has in store for investors.

Could it bring a market crash? Another flat-ish year? Or a year that sees the S&P/ASX 200 Index (ASX: XJO) break above its most recent highs we saw back in February. Perhaps it could even test 8,000 points for the first time ever?

The answer will of course be obvious in hindsight. But since we don't yet have the benefit of that, let's look at what an expert thinks.

According to reporting in the Australian Financial Review (AFR) today, an American fund manager is predicting a bumper year for US shares (which could arguably translate into a bumper year for our own ASX 200).

A 25% upside in 2021 for US shares?

The AFR reports that New York-based Fundstrat Global's research chief Tom Lee is expecting a 25% surge for the American S&P 500 Index (SP: .INX), saying it could end the year as high as 4,300 points (it closed this morning at 3,722 points).

Mr Lee said the US is on the cusp of a "new economic expansion" which "should lead to profit margin explosion after major cost-cutting efforts this year, a drop in equity risk premia and lower volatility". The reason to be optimistic on the share market is reportedly "pent-up demand", as well as "massive relief and celebration with an end to the pandemic". He says this could lead to "a substantially stronger than expected GDP recovery. This is what the resilience of equities in 2020 seem to suggest".

Speaking of volatility, Mr Lee notes that the VIX (an index that measures US share market volatility) has "averaged 29.5 this year, the third-highest level in 30 years". Lee sees the VIX averaging just 12 in 2021, suggesting that we should see far less volatility.

However, this happy prediction comes with a caveat. Mr Lee said investors "need to be prepared for some give and take as history says the S&P 500 will [be] likely to correct by 10 per cent to 3,500 between February and April". He puts this down to the fact that shares "need to work off overbought conditions before mid-year… I am stating the obvious – but markets cannot rise in a straight line".

However, Mr Lee also notes that risks still abound, and investors need to be careful of the unexpected. He lists some possible things to watch out for:

COVID-19 could mutate; vaccines do not work; the US dollar crashes; interest rates surge; investors are too bullish; Congress goes after big tech; and, President-elect Joe Biden has health issues.

But if all goes well, Mr Lee sees 2021 as the start of a new bull market, one that he sees possibly running all the way to 2030, with an S&P 500 at 10,000 points. That would certainly make the next decade one not to miss out on.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Businessman smiles with arms outstretched after receiving good news.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a lucrative return to trading for investors this Tuesday.

Read more »

Business man at desk looking out window with his arms behind his head at a view of the city and stock trends overlay.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

Warren Buffett
Share Market News

$10,000 invested in Berkshire Hathaway shares 5 years ago is now worth…

The past 5 years have been especially fruitful for Berkshire Hathaway investors.

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Coronado Global, Genesis Minerals, Monash IVF, and Platinum shares are sinking today

These shares are starting the week in the red. But why?

Read more »

A man sits in a chair hunched over a laptop and covered head to toe in frozen icicles to represent Envirosuite's trading halt
Mergers & Acquisitions

Johns Lyng Group shares enter trading halt. Is it a takeover target?

This ASX 200 stock looks ripe for a takeover.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Austal, Botanix, DroneShield, and NextDC shares are storming higher today

These shares are starting the week with a bang. But why?

Read more »

A female coal miner wearing a white hardhat and orange high-vis vest holds a lump of coal and smiles as the Whitehaven Coal share price rises today
Share Gainers

The Coronado Global share price just surged to a 114% weekly gain. Here's why

Investors have sent the ASX coal stock flying higher in June. But why?

Read more »

Two brokers pointing and analysing a share price.
Share Market News

Here are the ASX 20, ASX 50, ASX 100, and ASX 200 shares being added and kicked out of their indices

Let's see what changes are being made at this month's quarterly rebalance.

Read more »