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FIA Key Takeaways for 2021

FIA: Key Takeaways for 2021

Provided by the Investment Professionals of Frost Investment Advisors | January 29 , 2021

Frost Investment Advisors: Key Takeaways for 2021 

2020 was an unprecedented year filled with challenges and opportunities. After experiencing one of the quickest downturns in history, a swift fiscal and monetary response revitalized the markets, with the S&P 500 and NASDAQ surpassing pre-pandemic levels and hitting record highs. While this extreme market volatility caused investor angst, last year’s events provided key lessons for investors, such as the importance of staying the course without trying to time the market and avoiding the pitfalls of emotional investing.  

So far in 2021, there is an expectation of market stabilization. The dichotomy between the markets and the economy does cause some concern, as many investors and experts wonder about a potential decoupling. We continue to see a bull market despite jobless rates soaring and food lines increasing. It is important to remember that markets are forward-looking, so investors aren’t fixated on what’s happening today but are looking at outlooks for six months to a year from now. While a new wave of COVID-19 infections has stagnated the economy, vaccinations are under way, setting the stage for a more favorable economic environment.

However, not all recovery is the same, and some behavior changes adopted during the pandemic will remain sticky. Working/living/leisure from home continues to grow, opening up opportunities for the technology, shipping and distribution sectors. Other business areas such as travel will recover at a slower pace, and business travel has been upended as virtual connectivity opened new doors. All of these changes provide investors new opportunities as new markets emerge and the business landscape evolves. 

There are reasons to be optimistic, especially with more stimulus on the way and the Federal Reserve committing to maintaining the balance sheet. However, investors should exercise caution if there are vaccine delays, problems with distribution or a large number of people doubting immunizations, because the lack of vaccinations can derail efforts toward herd immunity. The virus must subside before strong economic activity takes place. Another key area to watch for is the new presidential administration’s policies. While there have been talks of increasing the corporate tax and implementing additional regulations, it remains to be seen if they will be acted upon in 2021, especially in the first half of the year when recovery is top of mind. Investors in 2021 should also pay attention to other key sectors and themes as we head toward recovery. 

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