2020 has been so bad that everyone is just eagerly waiting for it to end and expecting
2021 to be the savior.
Every worst possible scenario has happened this year, starting from a climate change
disaster that killed over 500 million animals in Australia to a pandemic that shat down
the world to an election that was chaotic, to say the least.
But not everything was as bad as it might seem.
Despite the stock market crash at the beginning of the year, the market had one of the best
years.
Some companies just crashed it and grew faster than they did in an entire decade prior to
that.
It's not the end of the year, and amazon's stock price has almost doubled.
Elon Musk went from 20 billion dollars at the beginning of the year to over 100 billion
dollars.
In fact, we made an entire video about the list of people who became billionaires as
a result of this pandemic.
Whoever took advantage out of this year, hats of to them, but what we want to find out in
this video is how the stock market will perform next year?
Which stocks will most probably rise, and which ones would fall?
And finally, will there be any Signifincant crash?
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how the economic machine works
To understand how the economy is going to perform next year, we have to find out how
the economy usually performs after a crisis.
You probably have heard that whatever rises will definitely fall.
And that is the case with the economy.
The economy has four main stages, and it starts with expansion.
It peaks somewhere at the top and plummets, which is also know as contraction, and once
it reaches the lowest point, it rises again.
During the expansion period, the economy is booming.
The stock market is rising, and it seems like the growth will be forever.
Interest rates are low, and Businesses are borrowing and expanding as fast as they can.
Investors are throwing their money at the stock market, and everyone is happy.
Unfortunately, it doesn't last forever.
At some point (peak), the central bank is going to say, "mmm, inflation is growing too
fast, let's slow it down."
So the FED will increase interest rates to keep inflation under control.
The economy has reached its full potential; it stabilizes and grows just enough to cope
with inflation.
But investors are used to extraordinary returns.
For instance, iPhone sales have been increasing since 2009, however in 2015, they slowed down
and stabilized since the economy wasn't growing fast enough.
That scares off investors, and some of them slowly start pulling out their money.
Businesses will do their best to maximize their sales to keep investors interested;
however, at some point, the supply will outweigh the demand.
So businesses slow down, that pushes away investors, which slows down further the market,
but businesses have somehow to survive, so they will start cutting cost.
First, by firing the least important employees, so unemployment starts rising, which means
the demand starts falling in the market overall.
Businesses can't even take a loan since interest rates are too high since the fed increased
them because inflation was too high.
That's how the economy slides into a recession (contraction).
People start to save since they are afraid and uncertain about the future, which means
the demand in the market falls even further, which means more businesses suffer, which
means more unemployment.
It's a never-ending cycle that will keep drugging the economy down.
Usually, the Fed intervenes by lowering interest rates to make borrowing money free to save
the economy from the recession.
But it doesn't always work instantly, and the economy keeps declining.
At some point, the economy is going to reach its bottom line (depression).
People are afraid to borrow because the economy looks so bad that they don't seem to be able
to pay it back.
In that case, the central banks will do what the Fed did this year "quantitative easing,"
that's just a fancy word for printing money.
Businesses will take that money and hire people.
Investors would see that the economy is slowly recovering and will start investing.
The economy will return to the expansion stage, and the same cycle will repeat over and over.
If we can find out where exactly we are in this graph, we can at least have an idea of
where the economy is headed to.
Back in 2015, the Fed started increasing interest rates because the economy reached its peak,
but then in 2018, the Fed lowered interest rates because the economy was sliding into
a recession.
Even the global GDP growth slowed down year by year.
In 2017 it was 3.1 percent, but in 2019 even before the pandemic, it fell to 2.4 percent,
the lowest growth of the decade.
And that didn't happen by accident.
We had Brexit, the trade war, and many other issues that slowed the economy.
But the final knockout out was the pandemic because it literally shut down businesses,
prevented consumers from spending, and left millions unemployed.
The economy immediately fell into a recession.
It wasn't clear how long the recession is going to last since the future seemed very
unpredictable.
But central banks stepped in and lowered interest rates to make borrowing money free, printed
trillions of dollars, and made sure to put the money into people's hand so that their
spending does not fall and get the economy out of this recession as soon as possible.
But most importantly, create an approved vaccine by the end of the year to bring life back
to normal.
The economy is still in a recession, and the GDP is going to shrink by 3.4 percent this
year.
However, the economy seems to be moving from recession back into the expansion period within
the next year once vaccination will be widely available.
Whether you trust vaccines or not, that's a story for another time, but feel free to
let me know your opinion in the comments below.
That's why most economists predict a 3.4 percent GDP growth next year, which is very reasonable.
The stock market doesn't usually follow the economy.
However, when the economy is at its expansion period, the stock market tends to do pretty
well because when the economy is growing, investors feel more confident to invest.
Especially since we are going to have a divided government, where Democrats control the house
and the executive branch and republicans control the senate.
Since 1928, S&P500, on average, grew bigger under a divided government than when a single
party controlled all branches of government.
So, Many analysts predict that the market will rise by 10 to 20 percent.
It also should be a great year for Tesla.
The Biden administration has raised concerns about climate change and will likely push
the government to invest in renewable energy and get back to the Paris agreement.
And as this industry grows, Tesla will grow as well, and since it has been added to the
S&P500 recently, next year will probably be one of the best years for Tesla.
But so does for other companies who are in this sector.
Another sector that will grow is the pharmaceutical industry.
Despite it being a boring industry, 2020 made everyone much more conscious about their health,
and governments around the world learned the harsh way that investing in healthcare is
a must if we want to be ready for another pandemic.
So investments in pharmaceutical companies won't stop next year.
Companies like Moderna and Pfizer will most likely keep growing.
And finally, the biggest gainers of next year are probably going to be the big tech.
First of all, amazon because it will play a key role in distributing the vaccine across
the world since it has one of the biggest distraction channels on the planet.
Of course, the big tech are facing antitrust issues but the chances that they will be broken
are too low.
Go and watch business casual's video on why the big tech won't be broken.
These are, of course, are speculations; however, they are based on factors and circumstances
on the ground.
Things can definitely take another way, but so far, this is how they look.
One way people made fortunes is by investing early in tech giants when they were just small
startups.
You can't of course, check out what every startup is doing, but this article by Tends
analyzed hundreds of startups to find out which industry is rising and which particular
startups are getting most of the funding and have the highest chances to become the next
trillion-dollar company.
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