My main business is investment, and some recent developments have gotten me thinking about where markets are headed this year. An end to the pandemic by Q2 2021 is predicted by multiple models (here and here). We’ve seen a substantial increase in personal income in 2020, largely due to the CARES Act. Much of that was saved and might fund consumption in 2021. More stimulus is likely forthcoming from the new administration and a Democratic Congress.

The combination of an end to the pandemic, increased personal income/saving/pent up demand, and further stimulus seems to set up a great scenario for stocks this year.

Meanwhile, Treasury yields dropped substantially in 2020 despite massive stimulus (and thus borrowing). The same may not occur this year, but suffice it to say the Treasury market seems to be able to absorb quite a lot of new issuance (see page 3 of this document).

My investments are heavily weighted toward equities, and I am expecting a good year. Perhaps we’ll revisit this in a year and see if I was right!