2021
Market Outlook

As we closed the book on 2020, we bid farewell to a year that saw the world’s financial markets experience historic setbacks and furious rallies. Similarly, the economy posted a breathtaking plunge, followed by a monumental surge.  

As 2021 dawned, the rollout of vaccines to battle COVID-19 and a fresh infusion of stimulus funds fueled investor enthusiasm. The Federal Reserve reiterated its pledge to backstop the economy as needed but uncertainties lingered around the pandemic’s course and how new leadership in Washington would steer the economy through the recovery.

Encouraging
Signs for 2021

To provide perspective for the year ahead, BOK Financial’s investment management team recently sat down to discuss key issues around the economy and financial markets, and offer their insights into ongoing investment considerations.

Economic Outlook

Catalysts abound for sustained economic growth.

Vaccine

Having saved $1T, immunized consumers will be ready to spend.

Equities still most attractive option in a richly valued market.

Theme 1

Economic Outlook

J. Brian Henderson, CFA
Executive Vice President, Chief Investment Officer

A Broad Sense of Optimism

Catalysts abound for sustained economic growth

We’re optimistic that the U.S. economy will rebound at a 5.0% clip in 2021, driven by three key trends:

  • The sufficient supply, at least by midyear, of COVID-19 vaccines should help us achieve herd immunity as early as the third quarter.
  • Washington policymakers and lawmakers stand ready to provide whatever fiscal and monetary relief the country needs.
  • Emboldened by stimulus checks and steady gains in the job market, the U.S. consumer is poised to drive economic growth.

Consumers Coming Back

Healthy household balance sheets supportive of spending growth

The pandemic-driven recession was unique in its depth and duration, yet its recovery primed most households for a robust 2021, featuring:

  • Higher incomes, due in part to federal aid packages, that contributed to an elevated savings rate.
  • Stock and bond markets that soared to record highs and increased the wealth of many Americans.
  • Ultra-low mortgage rates that allowed home owners to refinance existing loans and contributed to strong gains in the real estate market.
J. Brian Henderson, CFA
Executive Vice President, Chief Investment Officer
Matthew Stephani, CFA
President, Cavanal Hill Investment Management

Room to Roam

Inflationary pressures likely benign as recovery progresses

Although some have voiced concerns that the market is overheated and we’re closer to a drop-off than further gains, it’s important to remember that:

  • The pandemic derailed the previous economic cycle, so we’re actually in the early stages of a new cycle.
  • In key corners of the economy such as the labor market, office buildings and retail space there’s excess capacity to absorb solid growth.
  • Until that excess capacity is worked off, inflation traditionally stays at lower levels, which would allow the Federal Reserve to keep its key rate lower longer.

Unconditionally Supportive for Now

Fed policy calibrated to keep economy pointed onward and upward

The Federal Reserve responded remarkably at the pandemic’s onset to keep the credit markets functioning, employing tactics and programs that sparked a bond market rally in the second half of 2020. It followed up by confirming that it will remain accommodative in 2021 as:

  • COVID-19 cases take some time to retreat from the troublesome levels at which they started the year.
  • It allows more latitude in the nation’s inflation rate before it even considers raising rates, which tends to cool economic growth.
  • It has a wide assortment of tools to respond to any sign of economic sluggishness.
Steve Wyett, CFA
Senior Vice President, Chief Investment Strategist
Steve Wyett, CFA
Senior Vice President, Chief Investment Strategist

Wait and See Mode

Fiscal measures will hinge upon effectiveness of what’s already in place

The 2020 pandemic relief bills provided a valuable bridge for millions contending with the abrupt shutdown of the economy, although many workers in the hospitality, travel and other service industries continue to suffer. Lawmakers are weighing further fiscal aid in 2021, but before they take bold action we hope that they fully account for:

  • The time it will take for the $900 billion relief package approved in December to move through the economy.
  • The importance of regaining many of the 10 million fewer jobs the U.S. has compared to one year ago.
  • The long-term impact on the nation’s budget deficit, which ballooned by $3 trillion in 2020.
Theme 2

Vaccine

Matthew Stephani, CFA
President, Cavanal Hill Investment Management

Vaccine-fueled Sense of Normal

Having saved $1 trillion, immunized consumers will be ready to spend

It’s hard to understate the economic impact of the COVID-19 vaccines, which we believe will unleash pent up demand as consumers:

  • Are freed to gather socially, visit friends and family, attend school and celebrate holidays after a year of lengthy and challenging restrictions.
  • Look to spend the considerable savings they socked away to buffer any new downturns.
  • Look to purchase more than the goods and services they’ve been relying on for months while venturing beyond the strict confines they’ve endured.

Relief at Warp Speed

Federal vaccine investments to pay off in 2021

With Operation Warp Speed underway, this exceptional collaboration between the federal government and the pharmaceutical industry will help accelerate broad immunization efforts capitalizing on:

  • The government’s $10 billion investment in research and development that helped produce in less than a year what usually takes 5-6 years.
  • Exceptional work by the pharmaceutical companies in developing an incredibly effective vaccine.
  • The government’s commitment to distribute vaccines to the masses quickly.
Matthew Stephani, CFA
President, Cavanal Hill Investment Management
Matthew Stephani, CFA
President, Cavanal Hill Investment Management

Immunity to Shoot Higher

Vaccine aversion to dwindle, helping speed economic reopening

Surveys show that Americans are gradually warming to getting immunized against COVID-19, which is essential to supporting economic growth as it:

  • Accelerates herd immunity.
  • Facilitates returning to theaters, sporting events, travel and gatherings of all sizes.
  • Sets off a virtuous cycle as the positive experiences of friends, family and coworkers encourage others to get the shot as well.
Theme 3

Investments

Matthew Stephani, CFA
President, Cavanal Hill Investment Management

Impressive Earnings Growth on Tap

Equities still most attractive option in a richly valued market

On the heels of the impressive rally of 2020, stocks kicked off 2021 trading at price-to-earnings multiples not seen since 2000. Unlike that year, however, we see the stock market pushing higher as it allows for:

  • An expected 30% jump in earnings which could be even greater as consumers funnel their savings into the economy.
  • Few competitive alternatives when BBB-rated bonds offer around 3%, the 10-year Treasury yield hovers around 1% and cash still offers next to nothing.
  • Ripe conditions for a long-awaited rally in value stocks, which are scarce enough to entice rising investor demand.

International Outlook Bright

Weakening dollar potentially enhances returns from overseas investments

Ensuring that portfolios are well-diversified in developed and emerging markets around the globe seems wise in 2021 as such assets are poised to benefit from:

  • A decline in the value of the U.S. dollar as the government funds the battle against the pandemic and the Federal Reserve keeps buying bonds.
  • Less exposure in international markets to the over-extended technology sector.
  • Greater opportunities in classic value-oriented sectors such as financials, industrials, materials and energy.
Matthew Stephani, CFA
President, Cavanal Hill Investment Management

About the Experts

Steve Wyett Headshot, SVP Chief Investment Strategist

Steve Wyett, CFA

Senior Vice President, Chief Investment Strategist
More about Steve Wyett
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  • Responsible for the creation, communication and implementation of BOKF’s investment management message.
  • Serves on the Alternative Asset and Manager Review Committees, is a member of the bank’s Internal Trust, Investment, and Advisory Trust Services Committees, and Managing Director and Chair of the Investment Committee for BOK Financial Private Wealth, Inc., a wholly-owned RIA.
  • More than 35 years of investment expertise.
  • Earned a Bachelor of Science in Finance from Oklahoma State University and is a member of multiple Societies of Financial Analysts.
Brian Henderson Headshot, EVP Chief Investment Officer

J. Brian Henderson, CFA

Executive Vice President, Chief Investment Officer
More about Brian Henderson
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  • Leads Alternative Investments, Strategic Investment Advisors and Cavanal Hill Investment Management, Inc.
  • Recognized with multiple performance awards as President of Cavanal Hill prior to CIO appointment.
  • More than 25 years of experience with BOKF.
  • Holds a Bachelor of Business Administration from Southern Methodist University.
  • Supports various philanthropies throughout the Tulsa community.
Matt Stephani Headshot, President Cavinal Hill Investment Management

Matthew Stephani, CFA

President, Cavanal Hill Investment Management
More about Matthew Stephani
chevron arrow to expand bio content
  • Responsible for Cavanal Hill’s Fixed Income, Cash and Equity Management teams.
  • Previously led the award-winning Fundamental Equity Research team, where he developed new strategies and established a strong track record of performance.
  • Holds a Bachelor of Science and Master of Accountancy from Brigham Young University.

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