As the year wraps up in a couple of weeks, I want to point out a few things to look for in 2021 as the country tries to move past the global pandemic. Lives were changed … as were many industries. And while we’ve become used to the new normal, we’ll be able to get back on track eventually.
But the transition back may not be as smooth as we’d like. In particular, you should keep an eye on these three trends going into 2021.
1. Government Spending and Central Bank Printing
The fiscal and monetary mechanisms suppressing the value of the U.S. dollar and widening the gap in inequality will continue at a faster rate than ever. Money will continue pouring in. The question is, from where?
I expect asset prices to continue inflating from the accommodative fiscal and monetary policies under Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell.
If the senate stays red after the Georgia runoffs, it will be less fiscally accommodative to President-elect Biden’s plans. But if it turns blue, there will be larger-scale government spending.
In the case of lower government spending, the Federal Reserve would take the reins by injecting money into the economy. If the government spends more, the Fed would take a back seat.
Either way, money will be added into the economy on a scale large enough to prop up markets.
Of course, these are unsustainable practices that will devastate eventually. As the purchasing power of fiat currencies erodes, precious metals will provide safety against inflation, market uncertainty and social/political unrest.
If you don’t want to buy the metal itself, look for ETFs that offer exposure either through direct ownership or companies sensitive to it.
2. Joe Biden Industry Rallies
The new president-elect has made his agenda clear: He wants to expand clean energy and renewables, modernize infrastructure and legalize cannabis.
As such, I expect to see huge growth in these industries in 2021. And I’ll be keeping my eye on three ETFs, each leveraged to one of these industries:
ETF 1: iShares Global Clean Energy ETF (Nasdaq: ICLN) offers direct exposure to solar, wind, hydroelectric, geothermal and more. The expansion of renewable energy is inevitable. Renewables accounted for 20% of power generated in 2010, but it’s since increased to 27% … and they’re just getting started. And we’ve seen lowering energy costs concurrently. This ETF has an expense ratio of 0.46%.
ETF 2: Global X U.S. Infrastructure Development ETF (BATS: PAVE) tracks the Indxx U.S. Infrastructure Development Index, which measures the performance of companies leveraged to domestic industrial construction, engineering, transportation and raw materials.
Joe Biden already claimed he wants to start by retrofitting 4 million buildings, and the companies tracked in this infrastructure ETF will see their demand soar from the forecasted increase in industrial output. It has an expense ratio of 0.47%.
ETF 3: ETFMG Alternative Harvest ETF (NYSE: MJ) tracks many of the biggest and most prominent cannabis companies. It’s the largest cannabis ETF in the world by asset volume and focuses on all aspects of the industry including cultivation, production and distribution. It has an expense ratio of 0.75%.
3. Impact on Big Tech
2020 saw massive inflows of capital into tech because it was considered a “safe haven”. Many companies expanded during the pandemic and set a new standardized for the structure of work, life and entertainment at home. In a world where COVID-19 is under control, however, investors may look to reallocate to cheaper, beaten-down sectors just starting to recover.
As of Dec. 11, the top five companies in the S&P 500 index, Apple, Inc. (Nasdaq: AAPL), Microsoft Corp. (Nasdaq: MSFT), Amazon.com, Inc. (Nasdaq: AMZN), Facebook, Inc. (Nasdaq: FB) and Alphabet Inc. (Nasdaq: GOOGL), often referred to by the acronym FAANG, made up 20.3% by index weighting. That’s the most for the top five since 1980.
In addition to the shifting pandemic, there’s serious antitrust litigation on the horizon. As such, some may be forced to divest.
That said, I’m not bearish on tech. They’re some of the biggest innovators and impactors on everyday life. The advancements and innovations made necessary by the pandemic will still reshape our lives. Just be on the lookout for the broader market to catch up a bit.
Hopefully, you’ll be able take advantage of these happenings. I’ll certainly be monitoring all of these developments very closely for my Wealth Megatrends subscribers.
If you’d like to join them and receive more detailed, actionable updates on how to invest for 2020, click here.
All the best,
Sean
