2021 Outlook: Inaugural Report by the Q4 Market Intelligence Center

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With the inauguration of Joe Biden as the 46th President of the United States today, the members of our Q4 Market Intelligence Center compiled their own inaugural report to provide valuable insights on the year ahead. 

This report walks through a 2021 recap and outlook including: how markets have fared since the election was called for Joe Biden (and how that has compared to similar historical periods); what to look out for in President Biden’s first 100 days in office; and, what to expect from an earnings, valuation and economic perspective this year.

We have included some quick highlights and more in-depth takeaways below for your convenience.

Key Highlights: 

  • Since the US Presidential Election was called for Joe Biden (November 7, 2020):
    • S&P 500 – increased 8.2% 
    • Dow Jones Industrials Average –  increased 9.2% 
    • NASDAQ – increased 10.9%
  • On both a YTD basis and since the US Presidential election was called for Joe Biden, Energy and Financials have been the top two performing sectors amidst mean reversion following underperformance in 2020, fear of missing out and potential short covering. Energy is higher by ~51% since the election was called and ~15% YTD while Financials are higher by ~25% since the election was called and ~5% YTD.
  • After emerging as the top performing sector in 2020 (+41%), Technology has performed 8th best to this point in 2021.
    • Potential headwinds: fears of regulatory scrutiny, stretched valuations and possible bubble conditions
    • Potential tailwinds: Continued work from home conditions 
  • What to look out for in President Biden’s first 100 days:
    • Getting the COVID-19 pandemic under control
    • Passing substantial stimulus to help further the American economic recovery 
    • According to FactSet, analysts are expecting a roughly 23% increase in earnings in 2021 but any setbacks in coronavirus trends and economic restrictions could have serious implications for equity markets. 
  • There is rising confidence that the U.S. economy will return to pre-pandemic levels by the second half of 2021. Economists are predicting that GDP will bounce back 4.0% in 2021 with the unemployment rate falling back to 4.4%.
  • The bull case for traders during 2021:
    • Passing of significant stimulus measures
    • Accommodative monetary policy 
    • Improving COVID-19 trends 
    • Positivity around vaccine distribution 
  • The bear case for traders:
    • Potential political gridlock slowing stimulus measures 
    • COVID-19 case spikes
    • Slower-than-expected vaccine distribution
    • The potential for newly imposed social and economic lockdown measures.
  • Coming into 2021, a CNBC survey of 20 sell-side strategists showed a narrow majority expecting US stocks to continue rallying into 2021. Twelve of the 20 predicted the S&P would rise between 4,000 and 4,500 this year, while four predicted a finish between 3,500 and 4,000, and another four expected a decline to the 3,000 to 3,500 range.

2021 Outlook:

As we turn the page to a new year and welcome a new administration, investors have plenty to focus on as they assess the impacts of potential new legislation, the rollout of the COVID-19 vaccine, and an economy that is looking to reopen and rebound from last year’s shutdowns.

Equity markets continue to be forward-looking and it is clear there are high expectations among investors for this new administration. The 8.2% gains we have seen in the S&P 500 since the declaration of the election have been driven by industries that were hit hardest last year including Energy and Financials amidst some rotation into value, short covering, and mean reversion trades. Energy stocks, which are already up over 15% in 2021, and 50% since election, have benefited greatly from rising oil prices with crude oil breaking back above $50/barrel for the first time since before the pandemic.

After emerging as the top performing sector in 2020,Technology (+41%) has performed 8th best to this point in 2021. This sector has garnered a lot of forward-looking attention amidst fears of stretched valuations, potential regulatory scrutiny and possible bubble conditions. However, to the upside, it’s possible this sector could still benefit from work from home conditions. When thinking about the sector’s performance in the last several years, as well as the outsized weightings some tech stocks have come to demand, it is difficult to imagine seeing equities reach new heights without participation from this space.

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First 100 Days:

While Joe Biden has had the best recent run in equity markets leading up to his inauguration, President Trump (+5.3%) and President George H.W. Bush (+7.9%) saw the best stock market returns in recent history over their first 100 days in office. President Biden has expressed that his top priority in office is to take control of the ongoing COVID-19 crisis, which has been seeing rising cases and deaths in the last few months. He has pledged to deliver 100 million doses of the vaccine just within the first 100 days of his presidency, which has been described as “absolutely a doable thing” by Dr. Anthony Fauci. This administration will also look for ways to expand testing capabilities and mandates for wearing masks on federal property and interstate travel. Being able to quickly, and safely, reopen the economy will have the biggest impact on equity markets in 2021 and these steps are just the beginning.

Other objectives to help kickstart economic growth include passing a $1.9 trillion COVID relief plan, which includes plans to provide $1,400 direct payments to citizens and a $400 per week supplement to unemployment insurance. Janet Yellen, who is Joe Biden’s nominee for Treasury Secretary, has stated the need for a big stimulus package despite its potential impacts on the country’s total debt. The recent runoff elections in Georgia, which resulted in Democrats having control in both the House of Representatives and Senate, give the new administration better chances of pushing through its agenda, but there are bound to be political obstacles in the way.

Beyond the first hundred days, there are other legislative goals that can impact economic growth throughout 2021. Increasing infrastructure spending seems to have the most bipartisan support and can lead to significant job creation and economic growth. A major lingering concern, however, is Biden’s stance and proposal on taxes once the economy starts pushing higher. Biden’s tax plan proposes to raise the statutory tax rates for corporations, which could be a headwind down the road. However, it is still not certain he will get enough support to push through his legislation.


There is rising confidence that the U.S. economy will return to pre-pandemic levels by the second half of 2021. The year 2020 exhibited a roller coaster of economic activity with GDP declining 5% in Q1 and 31% in Q2, followed by a sharp 33% rebound in Q3. Despite the uptick in the second half of the year, overall GDP levels are still estimated to have contracted 3.5% over the year according to FactSet. Unemployment, which has fallen dramatically since the pandemic peak of ~14.8%, remains nearly double the 2019 levels at 6.7%. The pace at which unemployment levels have declined has also slowed down in recent months, which has sparked concerns about the stability of the economic recovery.

Economists are predicting that GDP will bounce back nicely by 4.0% in 2021 with the unemployment rate dropping down to 4.4%, according to FactSet. This is mainly being driven by the vaccine rollout in Q1, fiscal stimulus and a rebound in consumer spending. Investors also seem to have confidence that the Fed will continue to be accommodating with its asset purchases and policy to help fuel the economic recovery. However, there remains significant downside risk to these estimates including issues with vaccine distribution, insufficient fiscal stimulus, and political gridlock. 


With everything going on in the world, it is still important to get back to the fundamentals. As we get underway with Q4 earnings season, investors are pricing in a fourth consecutive quarter of earnings decline. According to FactSet, consensus expectations for Q4’20 earnings are for an 8.8% decline, which is actually an improvement from estimates earlier this year. In addition, analysts have revised their estimates higher and now expect a modest 0.4% increase in revenue after sharp declines in Q2/Q3 of last year.

Despite some of the rallies we have seen in recent months, Energy and other cyclicals are still expected to report the largest declines. Industries like airlines, hotels, restaurants, etc. are once again expected to report double-digit decreases in earnings. Keep in mind that with expectations so low, these sectors have also benefited at times from the biggest spikes and rallies on any positive market news.

While cyclical areas of the economy are still expected to struggle, defensive sectors and at-home industries will likely continue to outperform. Metals & Mining are expected to drive a 7% earnings increase across the Materials sector, while Healthcare is projected to have similar growth. In 2020, equity markets surged behind some of the biggest mega-cap names like Apple, Microsoft, Google, and Amazon. While there are some concerns about valuations and regulatory scrutiny, investors still seem optimistic these tech names will continue to benefit in 2021 due to work-from-home environments. 

More important than the actual fourth quarter results, commentary on guidance and future expectations will be the main area of focus for investors. According to FactSet, analysts are anticipating a roughly 23% increase in earnings in 2021, but any setbacks in coronavirus trends or economic restrictions could have serious implications for equity markets. Despite all the challenges and headwinds from the pandemic, the S&P 500 managed to close 2020 at fresh record highs with the Dow Jones finishing above 30K. The strong finish to the year has left some investors worried that market valuations could be stretched from a historical standpoint, even with the expected earnings rebound. On a trailing twelve-month and forward twelve-month view, the S&P 500 P/E ratio is well above average and hitting levels not seen since the dot-com bubble. If we do not see the strong earnings rebound or the pandemic continues longer than anticipated, we could start to see downward pressure on equity prices this year.


While 2020 was an unprecedented year filled with volatility and uncertainty, investors are optimistic that 2021 will provide a little more stability and consistency to markets. There are certainly many obstacles and headwinds still to overcome in the new year, but people are beginning to feel we are turning the corner and on a path to economic recovery. We welcome President Biden and his new administration into office and wish him the best of luck over the next four years.

The Q4 Market Intelligence Center provides all Q4 clients with regular “need to know” content on hot topics in the market, connecting the dots on why these issues are critical and what the impact of this news may have on their business or industry. Learn more about becoming a Q4 customer today by visiting our website or contact the members of the Intelligence Center directly by emailing billye@q4inc.com or kevinh@q4websystems.com. We look forward to being your source for everything markets-related and welcome your feedback and suggestions for future topics.

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