Stock Market 1Q 2021 Forecast: Equity Markets to Enjoy Continued Economic Recovery, Loose Monetary Policy

Stock Market 1Q 2021 Forecast: Equity Markets to Enjoy Continued Economic Recovery, Loose Monetary Policy

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Stock Market 1Q 2021 Forecast Talking Points:

  • The Dow Jones, Nasdaq 100 and S&P 500 will look to government-provided stimulus packages and continued accommodation from the Fed for fuel
  • The DAX 30, CAC 40 and FTSE 100 find themselves in a similar position, looking to their own central banks and governments to continue fostering an economic recovery
  • While some stocks have begun to exhibit symptoms of euphoria, equities might continue climbing in the first quarter without a serious change in the fundamental landscape

Stock Market 1Q 2021 Forecast: Equity Markets to Enjoy Continued Economic Recovery, Loose Monetary Policy

The three major US indices entered 2021 near record levels as the US economy continues to recover and the Federal Reserve gives little indication its monetary policy path will change in the near future. With such an encouraging backdrop on one hand, the market has been able to sweep surging covid cases and renewed lockdowns under the rug and focus on the bright spots in the domestic economy. Further still, supplementary rounds of coronavirus stimulus should help to bolster the American people amid the ongoing battle.

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Chart 1: S&P 500 Price Chart and Federal Reserve Balance Sheet

Stock Market 1Q 2021 Forecast: Equity Markets to Enjoy Continued Economic Recovery, Loose Monetary Policy

In some ways, it is of little surprise the indices have recovered to the degree that they have and the longer-term outlook for 2021 remains encouraging as a result of the same themes that fueled the recovery in equities from March to January. Nevertheless, concerns simmer beneath the surface

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