Health care, Energy and Infrastructure can be the leading sectors in 2021

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February 18, 2021 11:43 AM

Unprecedented stimulus, a soft U.S. dollar and positive trends in economic and earnings growth are key factors that will continue to support an equity uptrend in 2021.

US stock market, US economy, leading sectors, 2021, Merrill Lynch,An additional $1 trillion in spending, could add at least 1% in GDP growth, driving projected growth from 4.6% to nearly 6% for 2021.

The momentum in the stock prices seems to be going strong and the leading US stock market indices seem unrelenting to give up the gains in 2021. The front line sectors that saw some of the major gains in 2020 may still continue to reward the shareholders but the sector rotation may still be in the offing in 2021. All this and more is expected to be in the backdrop of the changing economic dynamics of the country. Also, with the president, Joe Biden in place, the decisions and the initiatives of the new administration will be closely watched.

Merrill Lynch in a report published on its website takes a close look at how key industries could be affected by the change of leadership in Washington. The report suggests that as a new administration takes the reins of government and begins to put its priorities into motion, markets have thus far reflected optimism that the economy will continue its path to full recovery. Among the positive economic signs, emergency approval and distribution of two potentially effective coronavirus vaccines in the U.S. have raised hopes of an end to the pandemic, at a time when cases are spiking in many parts of the country. And a new $900 billion round of stimulus, passed at the end of 2020, buoyed hopes for continued economic recovery.

The state of the US economy also seems to be back on the path of recovery. “The economy could be in full recovery by early 2021,” believes Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “That’s well over a year ahead of what the most bearish forecasts were during mid-2020.” He points to “unprecedented stimulus, a soft U.S. dollar and positive trends in economic and earnings growth as key factors that we believe will continue to support an equity uptrend in 2021.”

According to the report, here’s what could happen in some key areas as the new administration takes over the reins of government.

Health care

President Biden’s first health-care priority will be attempting to stem further spread of the coronavirus—a priority the markets should favor. In other health-care areas, Biden is likely to push for expansions of the Affordable Care Act and increased Medicaid enrollment, according to Andrew Bressler, Research Analyst, BofA Global Research.

Energy and the environment

The incoming Biden administration has already announced that the United States will rejoin the international Paris climate change agreement and has plans to establish a target of net-zero carbon emissions by 2050, says Ehiwario Efeyini, Director and Senior Market Strategy Analyst, Chief Investment Office for Merrill and Bank of America Private Bank. These and other steps could boost demand for solar, wind and other renewable energy sources while hastening a transition away from traditional fossil fuels.

Infrastructure spending

Biden and Congress will likely support a new wave of infrastructure spending, including both traditional projects such as new schools, as well as new projects, such as expanding broadband internet access. A greater emphasis on new infrastructure could benefit companies devoted to areas such as “smart cities” technology, autonomous vehicles and drones.

Government stimulus

Trillions of dollars in fiscal stimulus from the U.S. government helped businesses and families endure historic economic challenges throughout 2020. One challenge for the new government is agreeing on further fiscal relief for 2021. An additional $1 trillion in spending, could add at least 1% in GDP growth, driving projected growth from 4.6% to nearly 6% for 2021,” said Jared Woodard, Head of BofA Global Research’s Research Investment Committee.

The other side of stimulus pertains to the Federal Reserve’s monetary policies. The Fed has signalled its plans to continue near-zero interest rates policies aimed at helping stimulate the economy, Hyzy says. This should help businesses obtain the liquidity they need to plan for long-term growth, he adds.

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