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Investing Outlook: May 2021

2021-05-01, Michael Thompson

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Investing Outlook:  May 2021

The first quarter of 2021 played out roughly as expected with continued stimulus and low interest rates. Vaccinations have facilitated reopenings and an increase in travel. Most financial asset prices continued their climb, but at a faster rate than we expected. Value stocks appear to be gaining an edge over growth, particularly the lower quality growth stocks. Bitcoin climbed above 50k USD with continued mainstream adoption as we anticipated, but again faster than we expected. In this article we’ll update our 2021 outlook given the events of January-April.


It appears that policies will remain accommodative. President Biden has recently proposed a continuance of family stimulus until 2025, with some democrats wanting to make it permanent. Checks of up to 300 USD per child, per month, are scheduled to start in July.

Meanwhile, the Fed has said many times that it’s not even considering reductions in bond buying. However, the economy is strengthening quickly and will likely continue this trend. Meanwhile, some asset prices are climbing at an alarming rate. Given this, we expect the Fed to at least issue guidance later in the year about unwinding its balance sheet.


The US market has continued an impressive ascent it started about a year ago. The S&P 500 has returned over 46% in this time. The general consensus among experts we’ve talked to is that the US market overall is slightly overpriced. This will likely reduce returns over the coming decade, compared to recent history. International and value stocks still appear positioned for better returns, likely exceeding the overall US market by more than a full percent per year. Growth stocks may be in for particularly poor returns going forward.


This year has not been good for bonds, as many expected. Ray Dalio recently stated “you’d be pretty crazy to own bonds” right now. Low interest rates coupled with equity outperformance has indeed frustrated many bond holders. However, bonds continue to have a use—if/when equities suffer a significant pullback we expect bonds will play their role in softening the blow, allowing holders to rebalance into larger equity footprints.

Gold and cryptocurrencies

Gold has been a particularly poor performer in 2021, dropping almost 10% in the first four months. Bitcoin, on the other hand, has gained over 90%. While we had forecast strong Bitcoin returns this year, we did not expect them to come so quickly. After starting the year below 30k USD, the price of a single Bitcoin reached 64k in mid April. The price dynamics are significantly departing from the historical trends we’ve used for our forecasts, clouding our vision for what’s coming in the remainder of 2021.


A report from Fidelity showed that Americans saved particularly well in 2020. With this, broad availability of vaccinations and continued stimulus, we expect consumers to spend at a higher rate, particularly compared to the depressed spending 1 year ago. US core inflation could get close to 3%, but we continue to believe it won’t reach that mark. Later in the year we expect inflation to drop back closer to 2%.


Vaccinations and stimulus have been swifter than expected in the US. This will likely get the economy going stronger and faster than we expected at the beginning of the year. However, a recent poll showed that one in four Americans still refuse to get vaccinated, with another 5% undecided While the fraction of people against vaccination has been shrinking over time, there’s a real chance we won’t reach herd immunity in 2021. This will weigh on longer term economic progress. We expect roughly 6% GDP growth in the US this year.

The Euro area is struggling with COVID this year more than expected. They’re lagging behind in vaccinations and having to enforce new lockdowns. We expect GPD to grow just 4% in this region.

China has continued to keep COVID-19 at bay and we maintain our outlook of 9% GDP growth there. We also maintain our outlook of 5 to 9% GDP growth in emerging markets, with the upper end of this range found in the Asian region.


All investing comes with risk. The projections above are based on opinions that are sometimes wrong.

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