3 Developments to Follow in 2021 that Will Shape Our Economic Future

By Devone McLeod, CFP^®, January 8, 2021

The year 2020 may be gone, but unfortunately, COVID-19 is still here, reportedly more contagious than ever. I hope you and your family are safe—and that we can finally say farewell to the pandemic in 2021.

If the past 12 months have taught us anything, it’s that we should expect the unexpected. As legendary investor Peter Lynch said, “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”

Still, it’s worthwhile to look ahead and consider the big issues that will shape the future. Here are three developments I’m looking forward to watching this year.

Big Tech Legal Battles

On January 20th, Inauguration Day, the Democrats will gain control of the White House and both chambers of Congress. The Democrats have been discussing anti-trust (monopoly) legislation to break up large tech companies and limit their power in society for quite some time now. Facebook, Google, and other tech giants within the crosshairs will fight this high-stakes legal battle with everything they’ve got.

Tech stocks have given investors a decade to remember. A $10,000 investment in the Technology Select Sector SPDR ETF back in January 2010 would have grown to nearly $68,000 today, an 18.96% annual rate of return.

Will new legislation impede the performance of the tech sector? There are no guarantees in the stock market, of course. However, I do consider the impending legal battles to be headwinds.

A COVID-19 Vaccine Boosting Consumer Spending

During the Spring of 2020, many people associated increases in COVID-19 cases with stock market performance. The S&P 500 fell to its 2020 low before we reached peak cases in the U.S. The market tends to be a forward indicator, so investors sold equities in anticipation of economic shutdowns.

Now, markets care more about vaccine distribution. Once a significant mass of the population has been vaccinated, people can get back to work, vacation, shop, and start spending money again.

Consumer spending drives economic growth in the United States. Deloitte expects an increase of over 6% in personal consumption expenditure over the next two years, returning our economy back to pre-pandemic levels.

New Tax Legislation

After inauguration, President-elect Biden will need to immediately deal with the pandemic and possibly lobby for another round of economic stimulus. Additionally, he has campaign promises to keep, including his pledge to raise taxes on corporations and high-income Americans.

Raising taxes during a recession, however, may be both economically and politically risky. If we do not see a robust economic recovery, Biden will undoubtedly receive a share of the blame—no matter what policies he implements. The President always gets some blame. However, if he signs tax increases into law and the economy sputters, that will add to the case against his performance.

Does that mean we will not see new tax legislation? No one know for sure, but if I had to speculate, I would guess that new tax legislation will be voted on this year but implemented later on. If and when tax rates change, we will keep you up to date on the financial strategies we recommend to minimize your tax bill.

Most of all, let's look forward to a healthier year than 2020 and an end to the pandemic. Please do not hesitate to contact Reby Advisors if you need financial advice.