2021: S&P 500 4,300

Matthew Unger |


In early January 2020, our official 2020 forecast was 3,600 for the S&P 500. As of Christmas Eve the S&P 500 opened at 3,689. Nice to see the markets moving past our forecast given the year we've had.

With the Presidential Election behind us, and a vaccine with high-efficacy here, it's looking as though the majority of 2020's uncertainty is behind us.



One of the tools we use when forecasting is a “bell curve” of what other major firms are forecasting for markets. We know that markets tend to do what most people don’t expect, hence its nickname “The Great Humiliator.” We also know that major firms often underestimate markets, only to revise their forecasts upwards as they’re often cautious to be “too bullish.” One firm this year revised their forecast for 2020 over 5 times.



While we aren’t mooing that we’ll get to 4,300 in the S&P 500 in any linear fashion - and a correction of 10-20% isn’t out of the ordinary in a healthy and young bull market - what’s interesting is that 54% of forecasts in our above model are in the 3800-4000 range. As stated previously, The Great Humiliator tends to differ from what the herd thinks it will do.

As we don’t anticipate a back-to-back bear market, we are forecasting to the positive side of the 2021 firm forecast “bell curve.” 82% of firms believe the markets will be below our forecast, while 18% of firms believe the markets will do better than our forecast. We’ll call anything above 4,300 “house money.” After all, who wouldn’t love for JP Morgan to be correct with their 4,500 year-end forecast? That’s 20%+ from December 29th’s market close.

Additionally, we think the 3800-4000 range is low for multiple reasons: one being that the average S&P 500 return in the second year of a bull markets has historically been roughly 12%, and while we aren’t saying history repeats itself, it does tend to rhyme. Add another stimulus package under the Biden Administration, which may have much-needed local and state aid with the likely return to more normalcy thanks to a vaccine with high efficacy, we think even 4200 may be a slightly low. Of course, a lot of this will be dictated by human behavior, which we know to be quite unpredictable, continued earnings growth and other various factors.



As we near the end of 2020, I’d like to take a look back at this unusual year and look ahead to what might be in store for 2021. Of course, if anything I say raises an eyebrow, please get in touch. The idea is to provide a better ongoing dialogue and support you consistently over your financial journey.


What is on our mind and why?

As we enter the final month of 2020, we have a lot to absorb. COVID‐19 is still the biggest talking point obviously, including the potential for a major vaccine‐led economic recovery. However, there is no shortage of topics on the boiler for the “2021 outlooks,” which are beginning to hit our inbox.

With this, it may prove helpful for me to provide a 12‐month recap as a basis for where we see opportunities looking forward, including how we plan to continue making financial progress.


12‐month performance snapshot

‐ Our overall returns have surpassed expectations, especially given the weakness in the economy, which isn’t expected to fully recover until 2022 (economist forecasts vary).

‐ The last year has been all about COVID‐19, with losses in February/March followed by a recovery in asset prices. Playing a secondary role were issues such as the election, racial protests, the oil price crash, China/Hong Kong tensions, and so on.

‐ Interest rates have stayed at rock bottom, with additional stimulus in all its forms. Debt levels have boomed. The Federal Reserve Bank and federal government continue to throw their weight behind the recovery, which is a positive for the near term, although may have longer‐term implications.

‐ “Stay at home” assets like Big Tech stocks (think Amazon.com, Facebook, and Microsoft) really excelled in the early part of the year, although some of these gains have unwound as the year comes to an end. Valuations are thought to be playing a major role, as the disconnect between these companies’ stock prices and what they’re truly worth1 hit extreme levels.

‐ Our portfolio continues to be aptly positioned. We have plenty of positive positions that should add value over the long term, but we’re also balancing against tail risks. We continue to monitor these developments closely and have confidence in our ability to help clients hit their goals.


The bigger picture: what you should be focused on

So, where does this leave us? For starters, very few investors have escaped the recent volatility (both to the downside and upside) and so it is normal if 2020 has made you feel a bit uncomfortable. We do have plenty of good news to end the year and remain hopeful for a more prosperous 2021.

In truth though, a “slow and steady” approach is usually the most prudent. In this regard, we encourage you to anchor around three disciplines leading into 2021: maintain perspective, let facts outweigh emotions, and look to accumulate wealth steadily.

To bring this together, our greatest opportunity to add value comes off the back of disorder and extremes, acting rationally when others won’t or can’t.

Here’s to hoping 2021 will be far brighter than 2020.


1 A stock’s value ought to be determined by the current value of all of its future cash flows to investors. The current prices for many of these Big Tech stocks imply that the massive growth rates these companies have enjoyed recently will continue well into the future, which strikes as speculative.

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