A new RBC survey of 75 institutional investors reveals three key themes that are on the minds of large fund managers heading into 2021. Overall, the survey revealed that stock-market optimism is high, while a slowdown in the vaccine rollout is a risk that investors are monitoring. Investors also anticipate new sectors of the market, particularly cyclical stocks, to outperform. This survey from RBC Capital Markets measured what's on the minds of 75 institutional investors as the new year approaches. Detailed below are the three biggest stock market trends they're watching in 2021:
Strong optimism around stock market and economic outlooks
60% of survey respondents said they are "very bullish" or "bullish" on the outlook for the stock market over the next year, while just 9% of inventors said they are "bearish" or "very bearish."
Investors also expect 2021 earnings for the S&P 500 to come in at $168 per share, higher than pre-pandemic levels of $165. This is a more positive outlook than RBC's prior survey. Last quarter, most inventors believed that 2021 EPS would remain below pre-pandemic levels.
Vaccine rollout and politics are key downside risks to monitor
The coronavirus vaccine was the number one issue keeping investors up at night, closely followed by monetary policy and excessive optimism on the recovery.
On the optimistic side, 80% of investors believe that a majority of Americans will be vaccinated by the end of next year. However, expectations for when business and daily life will return "back to normal" have been extended further.
While in the previous survey the most popular response for when life would return to normal was the third quarter of 2021, now the most popular response is 2022.
88% of investors still believe Republicans will retain control of the Senate following the Georgia runoff elections, with 56% saying this outcome is bullish or very bullish for stocks. Policy issues that investors are most concerned about include corporate taxes and big tech regulation.
Meanwhile, investors are optimistic about infrastructure, climate, trade, and consumer/small business initiatives that will grow under the new administration.
59% of survey respondents said that US equity market valuations are "problematic," and only a very few said they are "attractive." According to RBC, this suggests that any threat to the economic and earnings recovery story-like a complication with the vaccine- could spark profit-taking.
Cyclical sectors will outperform
New parts of the market are expected to take leadership in 2021. Small caps, cyclical, value, and emerging markets were the top picks for areas expected to outperform. Meanwhile, investors are looking to sell 2020 at-home darlings and stocks within RBC's "TIMT" category: technology, internet, media, and telecommunications.
