March 12, 2021

Stock Market Forecast: S&P 500, Dow Jones, NASDAQ Predictions and Analysis for 2021

March 12, 2021

Dollar still on ten month lows while AUD gains

Stock Market Forecast: S&P 500, Dow Jones, NASDAQ Predictions and Analysis for 2021


The year 2020 has been the year of extremes, taking investors on one of the most dramatic roller-coaster rides in recent history. The global pandemic has wreaked havoc on the economy and is expected to get worse over the next few months. Meanwhile, the country went through a contested election, which is an eye-opening lesson for investors that predicting the future is a risky gamble.

Now that 2021 is just around the corner, financial analysts are offering their outlook on where the stock index market is headed in the coming year, with many experts hoping for a bullish outcome.

Without further ado, here is a look at what you can expect in 2021:

S&P 500 Index predictions for 2021

The most traded stock index in the world, the S&P 500, dropped suddenly by 33% in March, after the outbreak of the novel coronavirus pandemic ceased the global economy. Despite that, the S&P has recovered and reached an all-time high in the previous week, which is something that most financial experts did not foresee.

According to CNBC, some of the stock market strategists they surveyed believe that the stocks would rally in 2021 and the S&P is expected to rise between 8% and 22% next year to what it is now. As such, they expect the S&P to increase between 4000 and 4,500 in the coming year.

The reason for this optimistic view is the expectation of a government-stimulus package, as well as the rollout of an effective COVID-19 vaccine, which has already begun in select countries like the United Kingdom.

Deutsche Bank strategist Binky Chadha states that much of the 2020’s run-up came with multiple expansions and despite the reduced earnings, prices surged as most companies tried to come to grips with the fallout caused by the pandemic. However, 2021 is expected to be the year when the vaccine is rolled out and the economy recovers, which means the earnings will once again grow and multiples will redate.

According to Chadha, he expects the S&P 500 price target to be around 3,950, which is an increase of 8% from the closing on Dec 1, 2020.

Goldman Sachs has offered an even more bullish outlook, claiming the S&P 500 will rise to 4,300 in 2021 and voiced that the development of the COVID-19 vaccine will be the most important development for the economy, even more so than the potential policies of the Biden government.

The analysts further said that they expected the S&P to show 4,600 by the end of 2022, which implied about a 20% spike from Nov 13, 2020.

In addition, Morgan Stanley also expects the S&P to rally to 3,900 by Dec 2021, indicating an 8% climb from the current figures. Moreover, the investment banking company says investors who stock pick will be winners. Since interest rates are expected to rise in the coming year as the economy recovers, investors who find hidden gems will be the ones that will outperform others.

The strategists at Morgan Stanley recommend investors consider underappreciated stocks in cyclical sectors, such as basic materials, technology and industrial. Companies that have their earnings tied closely to reopening and GDP growth are also expected to perform the best.

Dow Jones Industrial Average predictions for 2021

According to Patrick Spencer of Baird, the Dow Jones Industrial Average stock index is expected to hit 40,000 in 2021, since the index contains more value than growth stocks and Spencer expects the value to grow more while the growth stocks attain stability.

On Dec 9, the Dow Jones closed at 30,068.81 points and has risen by more than 4%, despite the global pandemic. The last few weeks witnessed a positive impact on stocks due to expectations of a vaccine in the near future and Spencer believes this hope can result in a climb of about 25% from the current levels.

In addition, Spencer also said that Dow Jones would rally even more next year since there is $6.5 trillion worth of funds invested in short-term debt and cash. Despite a rise in investment in exchange-traded fund (ETFs), he added, more people are selling rather than investing in these instruments.

Spencer also said that equities continue to be out of favor of investors and hence, they will be surprised by the positive outcome of the stock markets next year.

In addition, Nicholas Bohnsack and Ross Mayfield, also of Baird, said that in addition to the cyclical sectors, BEACH stocks — bookings, entertainment, airlines, cruise lines/ casinos, and hotels — will also benefit from the roll out of the vaccine that will signal the end of the pandemic.

However, Spencer still accepts that the markets will remain volatile due to the pandemic, stimulus package, and the new presidency.

Nasdaq predictions for 2021

On Monday, the Nasdaq Composite continued to rise, even though the rest of the stock markets retreated from their record levels. At 3 p.m. on Dec 7, Nasdaq was up by 0.3%, putting it close to a new record-high level.

Most investors have turned their eyes toward fast-growing smaller companies that have been highlighted this year. However, for Nasdaq to continue its exceptional performance into 2021, it will require more contribution from leading companies, notably the FAANG companies — Facebook, Apple, Amazon, Netflix (interchangeable with Microsoft in which case they are known as the FAAMG companies), and Google.

Facebook and Apple, in particular, are both working on getting their shares back on track to the level they achieved in the summer of 2020. If they succeed, they can have a longer-term bullish impact on the market.

On Monday, Facebook shares rose by 2% after several months of bottoming, following a record-high level in the summer season. For Facebook, the challenges are regulatory since lawmakers are concerned the company is not doing enough to monitor content on its platform, resulting in a boycott by advertisers.

In addition, the company also faced an anti-discrimination lawsuit that didn’t do it any favors. However, despite the setbacks, the company has continued to push forward and has succeeded in creating new streams of revenue by acquiring Kustomer, a new customer relationship management software.

Apple Inc. also witnessed a climb of 1% on Monday in the wake of the launch of the iPhone 12 series. In addition, the third quarter of 2020 saw an increased demand for wearable tech after the company launched Apple Watch Series 6 and people started to relax their COVID-19 restrictions. However, it still has not been able to gain the levels it reached in summer and is below where it traded in early September. However, this can be an opportunity for the company to rise higher, even if its stock does not reach record levels.

If Nasdaq hopes to maintain its climb into 2021, its most influential stocks will be required to contribute towards its rise. Right now, investors have their eyes on the FAANG stock to see whether they can positively impact NASDAQ in the coming year and beyond.

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