Taking Stock: Q1 2021 Equity Market Outlook

Moving past unprecedented. Positive COVID-19 vaccine news in the final months of 2020 has markets looking to 2021 with optimism — and hope for a return to something more “normal.” Highlights of our outlook for the start of the new year:

  • Vaccine progress is a key market driver.
  • We see a value resurgence with near-term staying power.
  • Stock-level dispersion and leadership rotation augur well for active.

Market overview and outlook

The final quarter of 2020 will be remembered for many reasons, but perhaps none more consequential than the realization of at least three viable COVID-19 vaccines. Markets were cheered by the prospect of an end to the global pandemic and its weighty economic impact. Cyclical value stocks, those most beaten down in the COVID crisis, staged a late-year surge over growth stocks. We see value equities positioned for continued gains, but do not count out those growth companies with dominant and emerging business models that can continue to meet or exceed lofty shareholder expectations.

Many investors retreated to cash in a year of extraordinary uncertainty. We could see more assets make their way to equities in 2021 amid a market-friendly election outcome and a light at the end of the COVID tunnel. A resumption of buyback activity is another potential driver. The BlackRock Investment Institute, in its latest investment outlook, upgraded its pro-risk stance with a tactical overweight to equities.

Are there risks out there? Of course. But there is also cash on the sidelines, pent-up demand and a vaccine in flight – potential for a roaring 2021.