Today we will review last week’s DataTrek 2021 Look Ahead Survey. Thanks to all who participated!
A few particulars …
- We received a total of 307 completed surveys, the vast majority (96%) from the DataTrek community. The remaining 4% came from social media.
- There were 10 questions in total, 7 required and 3 optional.
- As with all investment surveys, the goal here was to assess and dissect investor sentiment. We’re as interested in WHY the consensus believes what it does as WHAT it believes.
… And a few details: We’ve ordered responses by either the scale presented in the survey or by the popularity of the answers, as appropriate. The most popular responses are in bold. We looked at the standard deviations of answers given to determine clusters of statistically similar replies. Percentages may not add to 100 percent due to rounding.
With that, on to your replies:
Q1: How do you think the S&P 500 will perform in 2021? (Choose one)
- Up by more than 15 percent: 10 percent of responses
- Up 10 – 15 percent: 32 pct.
- Up 5 – 10 percent: 36 pct.
- Flat (+/- 5 percent): 11 pct.
- Down 5 – 10 percent: 7 pct.
- Down 10 – 15 percent: 1 pct.
- Down by more than 15 percent: 4 pct.
Comment: the most notable points here are that 1) only 12 percent of respondents saw the S&P being down 5 percent or more in 2021 and 2) 42 percent think the index will rise by at least 10 percent next year. As Jessica has been chronicling recently, three +10 percent years in a row is relatively unusual and such an outcome next year would therefore be quite notable.
Takeaway: respondents were, on the whole, quite positive about large cap US stocks in 2021. The number of +5 – 10 percent/+10 – 15 percent answers were statistically similar, and their popularity was far ahead of the other choices.
Q2: What do you think the US 10-Year Treasury note will yield at year-end 2021? (Choose one)
- More than 2.0 percent: 4 percent of responses
- Between 1.5 – 2.0 percent: 21 pct.
- Between 1.0 – 1.5 percent: 45 pct.
- Between 0.5 – 1.0 percent: 20 pct.
- Between 0.0 – 0.5 percent: 9 pct.
- Negative yield: 2 pct.
Comment: there was a high degree of aggregate confidence in the 1.0 – 1.5 percent yield answer, statistically different from all other potential replies. After that, it is a coin toss between yields being a little higher (1.5 – 2.0 percent) or the same as recent history (0.5 – 1.0 percent).
Takeaway: the overwhelming majority of respondents (85 percent) saw rates ending 2021 somewhere between basically current levels (0.5 – 1.0 pct) and 2.0 percent, a range of outcomes that supports high US equity valuations. This is consistent with the answers to Question #1. Worth remembering, however: two years ago the 10-year yielded 2.9 percent.
Q3: How do you think the trade-weighted dollar index will perform in 2021? (Choose one)
- Dollar will strengthen by +10%: 1 percent of responses
- Dollar will strengthen by 5 – 10%: 9 pct.
- Dollar will be generally stable (+/- 5%): 37 pct.
- Dollar will weaken by 5 – 10%: 47 pct.
- Dollar will weaken by +10%: 6 pct.
Comment: as with the nature of your replies in the first 2 questions, there was strong consensus that the dollar will either be stable in 2021 or decline by up to 10 percent. We’ve been vocal in saying the latter outcome is more likely during a global economic recovery, and survey respondents did give that scenario a slight majority.
Takeaway: kudos to the DataTrek community for understanding that a weaker dollar is consistent with higher stock prices and only modestly increasing long-term bond yields. A softer greenback is a traditional chapter in the global economic recovery playbook. We often see market commentators wring their hands at a weakening dollar, but history shows it’s a common trait of post-crisis periods.
Q4: What do you think will be the best performing asset class in 2021? (Choose one)
- Emerging Market Equities: 30 percent of responses
- US Small Cap Stocks (Russell 2000): 27 pct.
- US Large Cap Stocks (S&P 500): 19 pct.
- Gold: 12 pct.
- Non-US Developed Economy Equities (MSCI EAFE): 7 pct.
- Cash: 2 pct.
- High Yield US Corporate Bonds: 2 pct.
- Investment Grade US Corporate Bonds: 0 pct. (1 vote)
Comment: the top answers here – EM and US Small Caps – are the tip of the spear when it comes to adding equity portfolio risk, so respondents clearly felt pretty bulled up about 2021. We were also impressed to see Gold at 12 percent of responses, so we dug into what those respondents thought about the prior 3 questions. They were, no surprise, more likely to believe that yields would be higher (due to inflation, presumably) and the S&P 500 would be lower/much lower.
Takeaway: while we understand the votes for Emerging Markets, we’ll take the opportunity to reiterate our preference for US small cap stocks since EM remains so heavily weighted to China (40 percent) and Chinese Big Tech (+15 percent) in particular. EM as a theme could work in 2021, but the MSCI Emerging Markets index is very much a China play now.
Q5: What do you think will be the best-performing US large cap equity sector? (Choose one)
- Technology: 27 percent of responses
- Energy: 18 pct.
- Financials: 14 pct.
- Health Care: 10 pct
- Consumer Discretionary: 10 pct.
- Industrials: 8 pct.
- Materials: 4 pct.
- Real Estate: 3 pct.
- Communication Services: 3 pct.
- Utilities: 2 pct.
- Consumer Staples: 1 pct.
Comments: these were the most surprising result of the entire survey, at least to our thinking. First: even with its run in 2020 (+36 percent), even with fresh regulatory threats, even with a year of tough comparisons for 2021, the Technology sector was respondents’ first choice and statistically different from all other replies. Second: Energy taking the runner-up spot is a bold cyclical choice, and we both agree it’s a good place to look just now and understand the group’s cyclical appeal. Lastly: every single group got at least a handful of votes, which shows a healthy diversity of thought among survey respondents.
Takeaway: while Tech is hardly a deep cyclical play, it is logical to believe that this sector can continue to draw investor interest even after the year it has had. It’s not necessarily our first choice, but it certainly is among our readers.
Q6: How do you think Tesla’s stock will perform in 2021? (Choose one)
- Up more than 50%: 3 percent of responses
- Up between 20 – 50%: 12 pct.
- Up between 10 – 20%: 22 pct.
- Flat (+/- 10%): 18 pct.
- Down 10 – 20%: 27 pct.
- Down 20 – 50%: 13 pct.
- Down more than 50%: 4 pct
Comment: this question yielded the widest dispersion of answers in the entire survey even though we intentionally put fairly large bands around the potential outcomes. There’s little actual difference between the middle 3 clusters of potential outcomes. The tails of the distribution are pretty even as well, with 10 respondents saying +50 percent and 11 saying -50 percent.
Takeaway: baked into the generally optimistic tone of respondents’ answers to our survey is the entirely understandable uncertainty of where TSLA goes in 2021. Also, we looked at what respondents who thought Tesla could rally by at least 20 percent next year thought about other issues in our survey. Predictably enough, they tended to favor the S&P 500 (Question #4) and thought index returns in 2021 would be higher than the average survey taker (Question #1). We suppose there’s no such thing as a Tesla bull who is a macro bear, and that makes sense.
Q7: Do you anticipate allocating more capital (personal or professional) to Environmental, Social and Governance (ESG) oriented funds or individual equities in 2021? (Choose one)
- Yes: 36 percent of responses
- No: 64 pct.
Comment/Takeaway: we thought the replies here would be closer to 50-50, so we’re glad we asked this question. Despite all the attention on this space, only our replies from social media said they would be allocating more to ESG investments in 2021.
Q8 (Optional): Will you take a C0VID vaccine in 2021? (Choose one)
- Yes: 65 percent of responses
- No: 11 pct.
- Not Sure: 25 pct.
- Note: 303 responses to this question
Comments: we made this an optional question to respect respondents’ privacy but 99 percent of you felt comfortable sharing your perspective, so thank you for that. The replies here are more open-minded about taking a vaccine next year than the survey results we see from the base US population. For what it’s worth, Nick is in the “take it ASAP” group and Jessica is in the “wait and see but very hopeful to be able to take in 2021” camp.
Q9 (Optional): What do you think will be the largest investment surprise in 2021 relative to current expectations? (Fill in box with brief answer)
- Comments covered a wide range of topics, but three broad subjects really stood out.
- The first was an expectation that virtual currencies are about to hit an inflection point in popularity and widespread adoption. There was some caution on this topic as well, but positive sentiment handily outnumbered negative comments.
- The second was a belief that markets are underappreciating the possibility of higher-than-welcomed inflation, possibly driven by resurgent energy prices.
- The last was a strong streak of caution regarding some of 2020’s themes, like incremental retail investor interest, SPACs, and high-flying Tech IPOs.
Comment/Takeaway: according to the word clouds we looked at from these entries, “inflation” was the most commonly entered theme for a 2021 investment surprise.
Q10 (Optional): Thinking now about your personal/professional stress levels in 2020, how would you characterize them relative to 2019? (Choose one)
- Much more stressful than 2019: 41 percent of responses
- Moderately more stressful than 2019: 31 pct.
- About the same as 2019: 19 pct.
- Moderately less stressful than 2019: 6 pct.
- Much less stressful than 2019: 3 pct.
- Note: 295 responses to this question
Comment/Takeaway: we knew the answers here would skew “moderately/much more stressful”, but we wanted to know the split between the two. Understandably, the top category got the most votes by a decent margin. And 7 in 10 respondents reported more stress in 2020 than 2019. This is a topic we (Nick and Jessica) discuss amongst ourselves every day in terms of how consumer attitudes have changed and what a “return to normal” will look like in 2021. All we know for sure is that heightened levels of stress create cascades of follow-on behaviors, and those are not always predictable.
In summary, we thank all of you who took the survey. These are always among the most popular pieces we publish, and we obviously cannot do them without you. We’ll do more in 2021, checking back in on the topics covered today and adding new ones as well. Whenever we publish survey results the first thing I (Nick) wonder is “how are these replies going to change in 3-6-9 months, and why?” Frankly, we can’t wait to get into 2021 to start seeing the answers to that question.