Planning trades for 2021? Keep these ideas in mind before placing your bets on Wall Street next year

With just a few days left in 2020, it is now time to think ahead and plan trades for 2021 and even beyond. This year will stay fresh in everyone’s memories for a long time for the varying movement equity markets across the globe witnessed. For 2021, there is a lot that investors need to factor in before they plan their trades. Will valuations play a spoilsport, will coronavirus continue to hit businesses, and where will inflation head to? With vaccination drives gaining momentum and approvals increasing, the future looks better but in terms of investing where do opportunities lie?

Lisa Shalett, Chief Investment Officer, Wealth Management Morgan Stanley, believes the emerging business cycle will create opportunities, but also challenges for investors. “We expect to see improved productivity and faster global growth, but also higher inflation and rising long-term interest rates. Positioning your portfolio for this transformation will require a different playbook than the one that worked in the last cycle,” she wrote in a recent blog. 

She goes on to highlight that passive index funds have outperformed actively managed funds over the past 10 years. However, this trend is expected to change. Lisa Shalett said that investors will now need to focus on the fundamentals of companies and sectors for results, hence she expects actively managed strategies to outperform those that passively invest across an index. 

Further, she added that two trends could benefit smaller firms over the next decade –growth in digital powerhouses and the trend toward deglobalization. “Technologies at the forefront of the next decade of faster growth may include robotics, artificial intelligence and big data, creating opportunities for new smaller-cap companies to flourish,” she said. The return of various supply chains to the US is expected to help mid and smallcap firms. Lastly, valuations will also dominate going forward. As it stands, some stocks have registered massive growth in the last decade and are now expensive, as the economy picks up pace, attractive value stocks could grab the limelight and shine bright.

While a new strain of the coronavirus is making some investors risk-averse, Stephen Innes, Chief Global Market Strategist at Axi said that the market is far from being bathed in abject defeat. “This is a market far from being bathed in abject defeat as the vaccine narrative has such a long runway for catalyst evolution through the end of 2021. It is difficult for prices to have, as consensus as it may be, to fully reflected all this far in advance,” he said.