With COVID-19 still spreading and both the market and the economy on fragile footing, it is understandable that investors may be cautious and even fearful going into the new year. While it is far from a universally positive situation, there are some good reasons to be optimistic that 2021 will be a better – and perhaps even a great year – for investors.

Key Takeaways

  • Despite worries about fearful consumers, it appears that people want to get back to normal as soon as possible.
  • We can expect a strong bounce back in some of the most battered sectors – we just can't predict exactly when.
  • Although not a welcome development, the pandemic forced many companies to adopt new technologies and digital workflows that will increase their productivity in the long term.

A Bounce Back Is Now a Matter of When, Not If

The biggest reason for investors to be positive about 2021 is that there is an economic bounce back coming, even if we can't be certain of exactly when. From the initial announcement by Pfizer Inc. (PFE) onward, the market has tried to position for a post-coronavirus world. This is a tricky thing for investors to do, however, and the actual transition from pandemic to a new normal will probably be more gradual and uneven than market participants expect. Although it will likely take longer to get there than we would like, the disappointment will be tempered by the strength of the bounce back.

Throughout 2020, we have seen repeatedly that people are eager to get back to the restaurants, gyms, and other activities the moment restrictions ease. Unfortunately, this eagerness has often been followed by more restrictions and higher cases. With more people protected against severe outcomes through vaccination (and hopefully from being a transmission vector, although this is to be determined), the new normal bounce back will be robust and could reverberate for some time as different parts of the economy surge early and end up dragging up other parts in their wake. 

The parts of the service and hospitality sector less dependent on international travel could bounce back first, eventually seeing a recovery through to the tourism sector, which would then have knock-on effects for the airline and travel sectors, and that, in turn, may ultimately spur the energy sector. These knock-on effects – particularly the timing of them – are difficult to predict, so the market effect is usually broad enthusiasm for stocks rather than trying to sort out the actual winners and losers as a recovery sets in.

Necessity Spurred Innovation and New Paths to Unlocking Productivity

With the exception of companies in the tech sector, staying open and working during the pandemic was challenging. Companies were forced to create or accelerate plans to build out IT infrastructure in order to allow for remote work and shift customers and workflows online. This has accelerated the adoption of current technology in industries that have been traditionally slow to digitize their business, including everything from used car sales to the public bureaucracy. 

While old practices will be reestablished in some industries where remote work was a poor substitute, the jump forward many companies took in technology adoption is going to open up new paths to higher productivity in the future. In some cases, this may be as simple and as powerful as allowing women to continue in their profession through flexible arrangements rather than a full maternity leave, for example. For some countries struggling with an aging population and a shrinking workforce like Japan, that simple change could be significant. Even in the United States, women pay a lifetime earnings penalty with every child, so any step to correct that would ultimately create wealth for families while also allowing companies to benefit by keeping competent and trained employees working. 

There are many other innovations beyond flexible working arrangements that have yet to be priced into the market. We often focus on tech and finance companies where leveraging the data that digital processes give off in order to optimize is the norm, but new swaths of the economy are just starting to discover this. As they benefit from the bounce back, we can expect more proactive investment in technology to boost productivity and improve the bottom line – something that will please investors in the long term. 

The Bottom Line

The pandemic wasn't a welcome development for most companies, but those that have adapted to survive will be well positioned to thrive in the bounce back. We didn't even touch on the massive amount of stimulus still being unleashed in the United States and across the world, mostly because these types of measures tend to have a short- to medium-term impact, with the exception of some of the infrastructure investment that is wrapped up in some stimulus packages. However, the adjustments at the company level have long-term benefits in improved operating costs and higher productivity – two things that investors love to see on a balance sheet.