After the whiplash and uncertainty of 2020, the only thing I know for sure is that 2021 is going to be a weird year on the market. As the world sees the light at the end of the pandemic's dark tunnel, many of the new trends we've experienced this year may prove to be short-lived.
Or, they might be more resistant to change than we could have imagined, as I think will be the case.
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1. "Stay-at-home" stocks will suffer, but their earnings won't stop growing
As people get vaccinated and start to venture out to in-person businesses with more confidence, stay-home-economy companies like Zoom Video Communications and Teladoc Health will fall out of favor. After all, once the pandemic is over, there won't be tens of millions of people who need to use their services on a daily basis, right?
As true as this may be, stay-at-home stocks are far from finished. In fact, their earnings might continue to grow now that people are familiar with their products and many workplaces have grown to rely on them. In Zoom's case, it probably won't be able to sustain its quarterly earnings growth in excess of 8,884% like it did in 2020, but keep in mind that its expansion can decelerate quite a bit and still end up with impressive triple-digit growth.
2. Ethical and sustainable investing will accelerate
Global warming didn't take a break in 2020. If anything, the climate crisis is more urgent than ever before. That's why environmental, social, and governance (ESG) investing is going to be one of the hottest trends next year. In a nutshell, ESG investing means buying stocks from companies that don't contribute to the world's problems, and divesting from those that do.
Using ESG criteria like environmental friendliness to evaluate your investments ensures that your portfolio won't make you complicit in harming our planet or its people. Major asset managers like BlackRock have already pledged to account for ESG factors in 100% of their investments by the end of 2020, and others are sure to follow. Plus, ESG investing is becoming dramatically more popular among younger investors, so it'll be a major force in 2021 and beyond.
3. Marijuana stocks will face a reckoning
Many cannabis companies have seen their stock price soar this year on news of possible legalization in the U.S. But, in terms of earnings growth and shareholder-friendly policies, the industry hasn't flourished (yet). Unprofitable companies are the norm, even though in many cases quarterly revenue growth is high, such as with Cresco Labs' expansion of 326.6% year over year.
In 2021, this picture will change. Competitors like Cresco and Canopy Growth have been dutifully reducing or controlling their expenses while gaining traction in their markets over the last year, putting them within a stone's throw of consistent profitability. Once a couple of these companies are reporting earnings growth, weaker contenders like Aurora Cannabis will be less attractive to investors.
4. Robinhood traders will continue to be a driving force for bizarre valuations
Robinhood's army of retail traders has been credited or blamed for many of 2020's market oddities, especially regarding hotly traded stocks like Tesla. If 2021 heralds a new bull market, expect Robinhood investors to keep blowing bubbles.
People who day trade using the app probably won't be going back to their jobs in person until later in the year, assuming that they only do so once they are vaccinated. So, that's a few more months for them to have a strong degree of influence on the market at a minimum. Even once society fully gets back to normal, don't expect these traders to disappear. Now that they've learned the thrill of investing -- which for them might sometimes be closer to gambling -- they're not going to go cold turkey just because other stuff is on their plates.
5. The market's decoupling from the "real economy" will increase
After the crash in March, 2020 saw the market roar. Unemployment also soared, and its recovery to pre-pandemic levels is still incomplete. As Main Street suffers through restaurant and small business closures, large and public companies have seen their stocks flourish. This trend will intensify next year for one big reason: The market looks forward.
As rough as things are economically, there's a clear trajectory of improvement, even if it's slower than we might like. Investors look at this trajectory, and assume that things will be better tomorrow than they are today. So, even if today looks bleak on Main Street, there's plenty of room to improve, and the expected improvement there will ensure more revenue for public companies.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cresco Labs Inc., Teladoc Health, Tesla, and Zoom Video Communications. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.