10 Clues for How to Invest in Stocks Right Now

TL;DR

Invest in stocks by comparing nine unexpected 2021 market scenarios with the optimistic assumptions already reflected in prices, then positioning for outcomes the market may have overlooked. Analysts expected earnings to rise 22% on 7.9% sales growth, while the S&P 500 traded at 23.8 times expected earnings. Read on to see how coronavirus strains, infrastructure spending, bankruptcies, vaccine distribution, and dollar strength could affect specific sectors.

Transcript

last year's stock market was nothing short of chaotic and there's reason to believe this year could be just as bad in this video i'll walk you through the nine market moving events that could shake stocks in 2021 scenarios no one is expecting we'll look at what might happen how likely it is and how to invest if it does we're talking stock market in... Read More

Key Insights

• 🏆 The market is currently optimistic about the 2021 stock market, with expectations of earnings growth and sector winners.
• 💰 Various market scenarios could impact stocks, including a new strain of the coronavirus, a social media platform breakup, a rebound in the value of the US dollar, a trillion-dollar infrastructure bill, retaliation by Iran, retail bankruptcies, vaccine distribution challenges, and a weaker market relative to the economy.

Questions & Answers

Q: How should investors approach stocks in 2021?

Start by identifying the assumptions already priced into stocks, then consider unexpected events that could change earnings or market direction. The speaker evaluates nine scenarios, ranks them from least to most likely, and considers how to prepare for each one.

Q: What was the market consensus for the 2021 stock market?

Analysts polled by FactSet Research expected earnings to jump 22% in 2021 on sales growth of 7.9%. They also expected the S&P 500 to rise 8.5% to about 4,040, reflecting an optimistic outlook.

Q: Why could weak tech and communication stocks hold back the S&P 500?

Technology and communication services represented 38% of the S&P 500 index. Their expected earnings growth of 13.7% to 14.5% was below the total market’s expected 22%, so underperformance in those large sectors could make it difficult for the broader index to rise.

Q: Was the stock market expensive based on expected 2021 earnings?

S&P 500 companies were expected to report combined earnings of $169 per share. That placed the market at 23.8 times expected earnings, its highest valuation since 2000 and 28% above the 10-year average.

Q: How could a new coronavirus strain affect stocks?

A strain that made the current vaccine ineffective could cause a significant market sell-off, although the speaker considered this one of the least likely scenarios. The strain identified in the UK was estimated to be 36% more transmissible, and related restrictions coincided with a 4% drop in oil prices.

Q: How might a trillion-dollar infrastructure bill affect stocks?

If the bill passed, materials companies and heavy-equipment makers could benefit from increased demand. Caterpillar and U.S. Steel were identified as companies that might benefit.

Q: What could vaccine distribution problems mean for investors?

Manufacturing problems, distribution issues, and storage requirements could slow the vaccine rollout and create a hurdle for stocks. The existing analysis identifies CVS and FedEx as companies involved in the distribution process that investors could consider.

Q: Could a stronger US dollar change the stock-market outlook?

A rebound in the US dollar, contrary to analysts’ expectations for weakness, could lead to a market sell-off. Energy stocks could suffer, while utility companies and telecom carriers could become more attractive as safe-haven stocks.

Summary & Key Takeaways

• The video provides an overview of the 2021 stock market's current assumptions, including expected earnings growth and sector performance.

• It presents nine potential market scenarios that could impact stocks, ranging from least likely to most likely.

• For each scenario, the video discusses the likelihood of occurrence and offers investment strategies to consider.