What's Ahead for the Markets in 2021?

While the first month of 2021 may not have been the clean slate many were hoping for, the markets, at least, finally have some clarity.

Joe Biden is our 46th president, and although the blue wave in Georgia was a bit of a surprise, when you look past the tax implications of a Democratic-controlled White House, Congress and Senate, the certainty of added stimulus is a net positive for the economy.

The road to recovery still looks uneven, but there are many reasons to stay optimistic in 2021.

Consumer Discretionary and the Consumer

I remain confident about the consumer discretionary sector and the consumer as a whole, as lockdowns across the country and previous stimulus packages have resulted in increased savings for many Americans.

On average, the savings rate is usually around 5%, but today, it's up to about 13%. Even if that goes back down to 5% over the next few years, that's a trillion dollars' worth of pent-up customer demand and potential consumer spending.

Some may decry more stimulus as unnecessary, as many Americans are not in dire financial straits. But many desperately need the money, and those who don't will add the extra cash to their savings accounts.

They may not spend it immediately, but down the line, that money is going to directly help companies in the struggling travel, leisure, hospitality and restaurant businesses.

Currently, the U.S. has almost $4 trillion in money market funds, and these additional savings will eventually be injected back into the economy and market as we get more certainty this year.

More Stimulus Will Lead to Better Growth and Earnings

Over the last 11 months, we've seen an unprecedented amount of monetary and fiscal stimulus put in place, which will likely lead to better GDP and earnings growth. Stimulus usually takes 10 to 12 months to flow into the economy, and we're coming up on the one-year mark of the first fiscal package.

Because of the stimulus, experts expect a 21% growth in earnings this year, and I think we could easily see a 30% growth due to the explosion of remote work. Many companies actually saw increased productivity and decreased costs, and despite all the chaos, their margins stayed elevated throughout 2020.

One potential headwind? Higher commodity input costs. I for one will be listening closely this earnings season to see just how much these higher expenses will impact companies' bottom line.

Investing Overseas

While I still like U.S. stocks, I think 2021 is the year to broaden out overseas. One country I have my eye on is Japan: Based on the U.S. dollar, the Nikkei 225 is at an all-time high, and while I wouldn't advocate owning only Japanese stocks, it's very telling that, with so much stimulus in place, people seem to be feeling better in terms of market risk.

After all, Japan is only 6.5% of the world market versus the U.S.'s 41%. Fewer people own Japanese stocks or even pay attention to them, but I find them very interesting right now.

Infrastructure

Some 10.7 million Americans remain unemployed, which is obviously bad news for the economy.

Boosting manufacturing is one way we could help alleviate this number, which is why I am confident that, in addition to a fiscal stimulus, we are going to see the Biden administration pass an infrastructure package focused on improving the nation's roads, bridges, tunnels and technology.

While manufacturing represents around 12% of U.S. GDP, it also has a multiplier effect for job creation: Every manufacturing job creates, on average, 7.7 more jobs.

As there is currently between $3 trillion and $5 trillion worth of infrastructure updates that need to be done in the United States, and millions of Americans looking for work, this seems like an obvious solution.

Reason for Hope

There were a lot of reasons to be on edge about the markets in 2020, and with COVID-19 cases spiking, the first few weeks of 2021 haven't been a walk in the park. But I believe that the additional stimulus is going to help us bridge the gap between now and that beautiful moment in the future in which we are all vaccinated.

While we can always find things to worry about, I am hopeful about what 2021 is going to bring.

Stephanie Link is chief investment strategist and portfolio manager at the national wealth management firm Hightower. She leads the firm's Investment Solutions Group, which specializes in outsourced chief investment officer services, model portfolios, separately managed accounts, investment research and due diligence for Hightower advisors. Follow Stephanie on LinkedIn and Twitter @Stephanie_Link.