Stock Market Still Has Plenty of Growth Potential

December 21, 2020
936 Views

Despite 2020 being one of the most financially unstable years in recent memory, the stock market has outperformed all expectations. From the pandemic lows of March, all major indexes have rallied since. Small caps, large caps, and stocks in the middle have all seen success.

It’s good news for investors, and analysts expect that the rally will continue. Here are the factors that could benefit portfolios in the coming months.

Vaccines Will Continue to Create Confidence

Pfizer’s (NYSE: PFE) Coronavirus vaccine is already being distributed in the United States and parts of Europe. Moderna (NASDAQ: MRNA) is close behind with its own vaccine that should soon be approved for emergency use.

These vaccines will initially be used to protect frontline workers like doctors, nurses, care home staff, teachers, police, firefighters, food staff workers, factory workers, and others who provide essential public services or perform jobs that are central to the economy.

The widespread availability of vaccines will occur sometime in the first half of 2021, which will make immunization possible for the public.

Coronavirus vaccines are central to growth in the stock market today. Investors are confident that the vaccines will prevent future lockdowns, business closures, and interruptions to the economy.

GDP is Quickly Recovering

The economy is rapidly expanding, assuring investors that the worst of the pandemic, at least in an economic sense, has already passed.

In Q1 of this year, GDP in America hit a high of $21.6 trillion, before falling 31.4% in the second quarter, one of the worst declines on record. The third quarter then produced a growth rate of 33.1%, putting the economy back at $21.2 trillion.

The full recovery will take longer and only half of the 22 million jobs lost in March have been recovered. The Federal Reserve expects that it could take three or more years to get back to pre-pandemic employment levels.

So, while the long-term will still be challenging for millions of Americans, investors are still finding confidence in the rapid growth of GDP.

Home Sales are Hitting Highs

The home market, a key indicator used to measure the strength of the economy, is rapidly growing. Home sales hit a 14 year high in October. In November, home prices were up 15% and sales in progress increased by 32%.

Low mortgage rates are driving activity. This will benefit buyers, sellers, and related industries like construction, architecture, retail, insurance, and lending.

Bullish Sentiment to Last in 2021?

It’s impossible to predict what will happen to stocks in 2021, but the future does look promising. Continued economic recovery, a strong home market, and even booming retail sales will continue to provide fuel for the most bullish investors.

Stocks today are the strongest they have ever been, and this could help to add more value to well-diversified portfolios.

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