The year 2020 has shown that anything is possible.
For some, this year was just too long. Some have forgotten what it is like to live a normal life and experience a less volatile market.
We are still watching the coronavirus pandemic at its worst as thousands lose their battle each day. The beginning of 2021 will not be much better, as Covid-19 is expected to pick up momentum after the holiday season.
A dark January lies ahead of us, but there are still plenty of reasons for optimism as we head into 2021.
Below are five key elements that investors will want to pay attention to going into next year:
Control of the Senate
We know that Democrats will control the White House and the House of Representatives, but the Senate remains up for grabs. And by next week, we could have an answer.
For Democrats to retake control of the Senate they will need to win two runoff races in Georgia. Currently, the Georgian seats are occupied by Republican incumbents Kelly Loeffler and David Perdue. Democratic challengers Raphael Warnock and Jon Ossoff will need to beat their opponents. If they do, there will be a 50-50 split between Republicans and Democrats in the Senate, meaning Vice President-elect Kamala Harris can cast any tie-breaking vote.
Democrats retaking the chamber would mean they could pass more stimulus packages, as well as decriminalize marijuana on the federal level like the House did earlier this month.
Biden's Use of Executive Power
If Democrats fail to retake control of the Senate, President-elect Joe Biden may just be limited to executive power.
If decriminalization of cannabis does not clear the Senate, Biden could exercise executive power to, at least, ease punishments on marijuana.
It's also expected that environmentally friendly Biden will be much harsher than President Donald Trump on fossil fuel companies. Expect Biden to reverse Trump’s climate rollbacks including rescinding the permit for the Keystone XL pipeline.
Also, if Biden can’t get his renewable energy-friendly policies passed in the Senate, he could declare a national emergency. That would allow him to order the Secretary of Defense to reallocate military funding for rapid clean energy development.
Against all odds, after a deadly pandemic hit the U.S. earlier this year, stocks have not only rebounded but have hit records.
This month, despite the momentum of the pandemic, the Dow Jones still managed to power past 30,000 points and hit a new all-time high. And in November, the Russell 2000 Index posted its best monthly performance ever.
That said, given the alarming amount of Covid-19 infections and the current state of the economy, you should expect some sort of a sell-off sometime soon.
Also, two states confirmed cases of the new higher transmissible coronavirus strain that was originally discovered in the United Kingdom. The new variant, which is believed to be 70% more contagious, could cause the markets to panic if more cases are found in the U.S.
For the time being, key Covid-19 vaccine developers are confident that their candidates will work against the new strain.
Nevertheless, while we aren’t advocating selling your entire investment portfolio, be wary of another sell-off period. Too bad we can't predict when it will happen.
The Great Vaccine Race
Speaking of vaccines, the obvious winners so far in the race are the candidates of Pfizer (NYSE: PFE) and Moderna (Nasdaq: MRNA). Both vaccines have shown to be roughly 95% effective in preventing Covid-19. Earlier this month, both received approval from the U.S. federal drug administration for emergency use.
But there will be multiple winners in this race in addition to Moderna and Pfizer.
Two vaccine developers to keep an eye on using the viral vector approach include AstraZeneca (Nasdaq: AZN) and Johnson & Johnson (NYSE: JNJ).
Earlier this week, AstraZeneca’s vaccine against Covid-19 got approved in the U.K for emergency use. According to chief executive officer Pascal Soriot, AstraZeneca’s vaccine will be as effective as the vaccines of Pfizer (NYSE: PFE) and Moderna (Nasdaq: MRNA) have shown to be. By February, AstraZeneca could have enough data to submit an application to the U.S. Federal Drug Administration, according to Operation Warp Speed chief Moncef Slaoui.
As for JNJ, it has not unveiled data showing the efficacy of its vaccine. But, earlier this month, Slaoui said JNJ could show off its first results from its late-stage U.S. trial in early January. Later in January, JNJ could have enough safety data to submit an application to the FDA for emergency use.
Both of AstraZeneca and JNJ's vaccine developments are backed by the White House’s OWP, an initiative aimed to develop a vaccine in record time.
As we head into 2021 you’ll want to keep a close eye on both biotech giants, as having two more safe and effective vaccines on the market could be pivotal in helping end the pandemic.
Earlier this month, I recommended taking a look at shares of JNJ.
Sino-American Trade Tensions
To begin the year, U.S.-China trade relations were off to a solid start with both sides signing the phase one trade deal. Then, well, a deadly pandemic that just so happened to start in Wuhan, China, hit the United States—and everything changed.
After originally praising President Xi Jinping for his response on the coronavirus, Trump started to change course when the situation started to worsen in the U.S. and destroy the economy. Since the spring, Trump has repeatably bashed China for its handling of Covid-19 and lack of transparency. He even goes as far as to call the widespread disease the “China Virus.”
Then beverage maker Luckin Coffee (OTC: LKNCY) allegedly fabricated more than $300 million in sales. That not only led to the Chinese coffee chain getting delisted by United States Securities and Exchange Commission in June, but congressional lawmakers moved to put an end to fraud and better protect the American investor from foreign securities for good.
Earlier this month, President Trump signed a bill into law that could lead to the delisting of Chinese firms on U.S. exchanges if they refuse to abide by U.S. auditing standards.
In addition, the Trump administration added around 60 Chinese firms to its trade blacklist including the nation’s top chipmaker Semiconductor Manufacturing (OTC: SMICY; HKEX: 00981) and drone specialist SZ DJI Technology.
But what will happen once Biden takes office? Although Biden won’t blame China for the coronavirus to the degree of Trump, many experts believe that relations between the two nations won’t get much better.
In a foreign affairs article earlier this year, Biden wrote “The United States does need to get tough with China.”
“If China has its way, it will keep robbing the United States and American companies of their technology and intellectual property,” Biden said.
He added, “It will also keep using subsidies to give its state-owned enterprises an unfair advantage — and a leg up on dominating the technologies and industries of the future.”
So what does a Biden presidency mean for blacklisted companies including tech giants Huawei Technologies and Semiconductor? Will Biden leave Phase one of the trade deal alone? Also, will Beijing be willing to comply with the U.S.’s auditing demands?
Those will be key factors you’ll want to keep a close eye on.
Now, it’s time to put an end to a dark 2020.
The opinions expressed in this article do not reflect the position of CapitalWatch or its journalists. CapitalWatch has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice.