Stock market predictions and the stocks Australian retail investors will have in their portfolios at the start of 2021

2020 has arguably been one of the wildest years the stock market has ever seen.

Now, as we start to farewell the year that’s been, investors are starting to plan their portfolios for the year to come. With the newly elected president Joe Biden in the US and the race to find a COVID-19 vaccine still at play, it’s expected to be an interesting year for investors.

What should investors expect?

Stimulus package and new US president

Moving into 2021, it is hoped that a stimulus package will be agreed upon before the end of 2020. This would be a huge positive for US markets, as it’s been expected that the Democrats will look to push through a stimulus package within Biden’s first few months as president. Although, the package may be smaller than originally expected had we seen a ‘blue wave’. 

A stimulus package is also likely to weaken the USD, as we move into the early stages of 2021. A weakening USD could see many investors shift towards traditional assets such as gold, or cryptoassets such as bitcoin – the latter has returned 126 per cent YTD.

A divided government in 2021 will also benefit investors, as we are unlikely to see any dramatic policy changes over this time. Biden has announced his plans of higher taxes and introducing renewable energy in the US, but these are unlikely to be pushed through as quickly as anticipated. Not only does this result in less volatility in the markets in the early stages of 2021, but it’s also highly favourable for traditional energy industries such as oil and gas.

Oil demand

Demand has slumped for oil since the first half of 2020, reaching negative prices and continuing to struggle ever since. Prices have rallied on the back of positive vaccine trials in recent weeks, but this is unlikely to help demand in the short term. OPEC has already lowered its global oil demand forecasts for the remainder of 2020 and the start of 2021

Any large spikes in COVID-19 cases throughout Europe and the US will continue to provide downward pressure on oil as we move into the new year. The recent news of an effective vaccination, which is expected to become available in the near-term, could potentially limit the decline of oil in 2021. A vaccine early in the new year could see prices move back towards early 2020 highs of $50-$55 a barrel. 

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Vaccine hopes

With hopes of a vaccine being developed in the short term by Pfizer, many experts believe that we still have a long way to go before it can be introduced globally, as well as be produced on a mass scale. Pfizer has been working in the background on its vaccine, whereas names such as Gilead Sciences, Moderna and AstraZeneca have been more prominent in the news as competitors in the race for the vaccine in 2020. 

Gilead announced stage 3 trials in April and the FDA recently approved its remdesivir drug, which was the same drug that Donald Trump was prescribed. Reports also show that AstraZeneca is producing a drug here in Australia which we could see rolled out in the new year, despite not yet passing the last stage of approval. 

Any vaccine is likely to bring optimism to the markets, and analysts at JP Morgan predict the S&P 500 could increase by 11 per cent in the first half of 2021, as a result.

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What other stocks should investors keep an eye on?

Chinese stocks

China continues to demonstrate the best recovery from the global crisis, compared to the US, the UK and Europe. During the first half of 2021, we can expect to see Asian markets, with China in the lead, outperform the global equity markets. With renewed hopes under Biden that the relationship between the US/China can potentially improve, there are big hopes for the Asian markets, specifically in China Tech. Names such as Tencent, Baidu and NetEase are likely to benefit from a more diplomatic union between the two countries. 

Alibaba recently recorded $56 billion in Singles’ Day sales, exceeding its 2019 high. This data clearly shows a movement towards online sales and a favour in Chinese eCommerce companies such as Alibaba and JD.com. It’s expected that this trend will continue to accelerate in 2021. 

eCommerce and payment provider stocks

2020 has been the catalyst for a move to an online world, and there’s no stopping for 2021. It’s expected that eCommerce and payment provider companies will boom more than ever, as consumers continue to feel more comfortable shopping from the comforts of their own home. In 2021, I believe this acceleration of digital transformation will continue into many parts of our lives, and we’ll be looking to technology providers to make our buying experiences even easier. This includes how we pay for products and services, with leaders such as PayPal planning to integrate cryptoassets into their platform.

Cloud computing and AI stocks

Nvidia, who have enjoyed a strong 2020 so far, are looking to continue the drive towards global AI dominance in 2021. In September, Nvidia agreed to buy Arm Holdings for $40 billion as they seek to corner the AI market. This acquisition could be a game-changer for Nvidia in 2021, especially as the world continues to adapt to AI technology and cloud computing. 

In what has become one of the most common words in the realm of technology, cloud computing has changed numerous aspects of our daily lives. Cloud computing will underpin the technology we use today such as email, video streaming and even social media. 

There are some very big players in the industry already from Microsoft, Google, Amazon and Salesforce, even Snowflake, which went public this year and was backed by Salesforce and Warren Buffet. Another software company to go public this year was Palantir Technologies

Palantir was one of eToro’s most popular stocks for Australian and global investors in October after it’s initial IPO. They provide big data analytics and have been working very closely with the US government. Their software is perceived to be more affordable, which is likely to be positive for Palantir as we move into a US government under Biden, who is keen to cut spending. In its first earnings report since going public, the company raised its annual revenue outlook after increased demand this year. The pandemic has caused government health agencies to increase their investment into software, and I can see Palantir capturing a part of this investment in 2021.

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