This week we released Outlook 2021: Powering Forward, with our 2021 market and economic views.
In the past several Outlook publications, we have favored the United States over developed international in equity allocations (international developed markets are composed primarily of Europe and, to a lesser amount, Japan). Each time we settled on those views, and as valuations for stocks outside the United States got relatively cheaper, we had thought we might be getting closer to an eventual sustainable rotation. But we didn’t get there. It’s been like taking a road trip with the kids and hearing, “Are we there yet?” too many times.
Continue to Favor the United States
This year is shaping up in a similar way. We continue to favor US equities over their developed international counterparts, as we noted in Outlook 2021, even though the valuation gap between the US and these international markets has widened further over the past year.
But as we look ahead, we can envision a scenario at some point in 2021 when markets may respond to a coordinated global economic expansion after the developed world gets through the pandemic. A weaker US dollar may help. Japan may get a boost from the massive amount of fiscal and monetary stimulus the Japanese government and the Bank of Japan have implemented to boost its economy. A rising tide may lift all boats—including those that have not been the strongest in recent years. We simply think now is too early to make that shift in a meaningful way.
Favorable Emerging Markets Outlook
The outlook for emerging markets stocks looks better to us as 2021 approaches. This asset class is made up mostly of Chinese equities but includes several other Asian, European, and Latin American countries that index-provider MSCI classifies as emerging or developing.
“We expect emerging market economies to lead the global economic rebound in 2021,” said LPL Financial Chief Market Strategist Ryan Detrick. “We believe growth in international developed economies may lag behind the United States, although a strong fiscal response may help Japan.” LPL Research forecasts global gross domestic product (GDP) growth in the 4.5–5% range in 2021, as shown in the LPL Chart of the Day.
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