Morgan Stanley Investors Will Want To Be Risk-On In 2021 This Is Why

Next year could be a good one for stocks as the market recovers following a difficult 2020, Morgan Stanley argued in a note out this week. Here’s what else the firm is forecasting for the year ahead.

To say that 2020 has been a tumultuous year might be the understatement of the century.

Not only has there been a pandemic, plus the deep recession and millions unemployed that came with it, but we’ve seen near war with Iran. An oil price war. The fastest bear market in history. Nationwide protests. A difficult presidential election. Murder hornets.

But despite all this, the market has been resilient. This week, the Dow hit a new all-time high on Tuesday of 29,950. The S&P 500 hit a new record high as well, rising to 3,626.

And next year? Morgan Stanley (NYSE: MS) says an expected “V-shaped” economic recovery, greater clarity on vaccines for the coronavirus, and continued policy support sets up for a favorable environment for stocks and credit in 2021.

For the firm’s outlook for the year ahead, strategists led by Andrew Sheets recommend investors be overweight equities and corporate bonds as volatility subsides, and urged investors to be “patient” in commodity markets.

“This global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook,” the strategists wrote. “Keep the faith, trust the recovery.”

Morgan Stanley’s base case calls for the S&P 500 to reach 3,900 by the end of 2021, and the firm cut its forecast for gold to $1,825 an ounce on average next year from its previous target average of $1,950 an ounce given the expected economic recovery.

The strategists, however, warned that it won’t be a smooth ride upwards and said that significant challenges remain, specifically a worse-than-expected winter wave of the coronavirus and a return to austerity in the longer-term.

Optimism over positive COVID-19 vaccine news from Moderna (NASDAQ: MRNA), and Pfizer (NYSE: PFE) and BioNTech (NASDAQ: BNTX), as well as renewed hopes for additional fiscal stimulus to bolster the economy, pushed stocks higher this month. But there are skeptics that argue the short-term outlook is challenging as coronavirus cases continue to surge and new lockdowns are implemented to help stem the spread of the deadly virus, and lawmakers continue to bicker over the size of the next stimulus package.

Still, despite the skepticism, Morgan Stanley joins a chorus including Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE: JPM) putting a positive spin on stocks heading into 2021, with Goldman’s David Kostin forecasting society’s return to normal gradually over the next year and JPMorgan’s Marko Kolanovic seeing the results of the recent U.S. election as a bull case for markets.