2021 Investment Outlook: Beyond COVID-19

By Mitchell J. Smilowitz, CPA

Despite the pandemic, investment markets performed remarkably well in 2020. The S&P 500 increased 16.3%, the Dow increased 9.7%, and the NASDAQ jumped an astonishing 43.6%! No one could have predicted such returns in the middle of a global health crisis.

What can investors expect in 2021? Here’s what Fidelity, Goldman Sachs, T. Rowe Price and Vanguard have to say.

Fidelity – 2021 Outlook: Mind the Gap

While the economy has begun to heal, the current wave of COVID-19 infections has caused the recovery to slow. The question is whether vaccines will be available fast enough to prevent the economy from stalling out.

The Fed has made it clear that it can’t do all the heavy lifting and that recovery requires a combination of fiscal and monetary policy. The promise of additional fiscal stimulus is already priced into stocks, so only modest returns are anticipated in 2021. Modest stock market returns are also consistent historically with the first year of a presidential cycle.

Interest rates are likely to remain low in 2021.

Goldman Sachs – V(accine)-Shaped Recovery

Goldman Sachs views the coronavirus recession as much more V-shaped than previous postwar cycles. As the population builds immunity to the virus in the spring and summer, Goldman Sachs analysts believe that economic activity should rebound sharply in depressed sectors such as travel, accommodation and food services. Even under their optimistic GDP forecast, however, it will likely take several years before output and employment are back to their potential levels.

One important assumption underlying Goldman Sachs’ forecast is that governments in countries hard-hit by coronavirus infections will continue to do a reasonable job replacing private sector income lost to the disruptions via wage subsidies, enhanced unemployment benefits, and other income transfers. The $900 billion stimulus package passed at the end of December should provide a small positive fiscal impact on U.S. growth in 2021.

Inflation is expected to remain low. As a result, it is expected that the Fed, the European Central Bank and the Bank of England will wait until 2025 before hiking rates.

Global growth forecasts are generally positive. Central and Eastern Europe hold the greatest concern; after a strong GDP rebound in Q3, these economies are now slowing sharply because of renewed virus outbreaks and the risk of another round of lockdowns. Latin America and South/Southeast Asia suffered from rampant virus spread in the middle of this year but have seen an ongoing improvement in recent months. Goldman Sachs expects GDP in many of these countries to continue to recover quite strongly from still-depressed levels.

In China, where output is already back to pre-pandemic levels, credit is growing rapidly and fiscal policy remains very expansionary.

T. Rowe Price – Global Market Outlook: Managing to the Other Side

The first quarter of 2021 could see a trough in economic activity due to a resurgence in COVID-19 infections. Assuming a successful vaccine rollout, economic conditions could improve rapidly in the second quarter. Rapid earnings growth might not translate into strong equity returns in 2021 because a lot of the recovery is already priced into the markets.

A broader economic recovery also could produce a modest uptick in inflation. A return toward pre‐pandemic consumer spending patterns could further improve the attractiveness of value investments, such as financials and energy, relative to the tech stocks that dominate the major growth benchmarks.

For fixed income investors, 2021 could be challenging. A modest revival in inflation could make managing interest rate risk a portfolio priority.

Social and economic upheaval caused by the pandemic could worsen political divisions. Tensions between the U.S. and China are another potential flashpoint.

Vanguard – Vanguard Economic and Market Outlook 2021

Assuming a reasonable path for health outcomes, the scarring effect of permanent job losses is likely to be limited. In China, Vanguard expects the robust recovery extending in 2021 with growth of 9%. They expect growth of 5% in the U.S. and in the Euro area, with those economies making meaningful progress toward full employment levels in 2021. In emerging markets, Vanguard expects a more uneven and challenging recovery, with growth of 6%.

The global equity market is neither grossly overvalued nor likely to produce outsized returns going forward. Given the outlook for continued low interest rates and government bond yields, a material uptick in fixed income returns is unlikely, but high-quality bonds will remain a key portfolio diversifier.

Inflation rates persistently above 3% are unlikely in most developed markets.


While they differ in the specifics, there is general agreement among these four investment projections:

  • Assuming the vaccine rollout proceeds as expected, the global economy should recover during 2021. Full economic recovery, however, may take several years.
  • The stock market should provide positive returns, though returns are predicted to be lower than in 2020.
  • Low interest rates are likely to be the norm for the foreseeable future.

Please contact the JRB at 888-JRB-FREE (572-3733) or send us an email to discuss how these projections may affect your asset allocation.


January 2021