Top 3 Risks for Your Growing Equity Portfolio in 2021


The winter melt in stock markets makes most investors only think of easier earnings for their portfolios in 2021.

But not so fast, bullish: One of Wall Street’s most rosy firms believes that several risks are brewing that could slow the fierce rally.

Read more: How to build an investment portfolio to outperform the market

“The first week of vaccine distribution has shown that the logistics of proper administration are complex and uncertainty remains about the number of doses to be distributed in the first half of 2021,” warns Goldman Sachs strategist David Kostin.

Kostin lists a difficult launch of COVID-19 vaccines as a key risk to stocks. Its other two risks stem from the possible return of inflation and political uncertainty.

“Some investors have expressed concern that the recovery in economic activity, additional fiscal stimulus, and sustained asset purchases by the Fed could lead to higher inflation and higher Treasury yields during 2021.” Kostin writes. “If Democrats win both rounds of the Georgia Senate on January 5, they would take over the Senate with a 50-50 split.”

Certainly, it could be argued that investors are in no way considering the new risks presented by Kostin, essentially exposing the portfolios to surprise losses. But who could blame the bulls for sporting their party hats ahead of the New Years Eve attacks on Zoom, given the sentiment in the market currently?

The Fed’s Free Money Tap Won’t Close Anytime Soon Fed Chairman Jerome Powell seeks to do his part to fight the debilitating economic effects of the COVID-19 pandemic. This easy money fire station has proven time and again, and continues to do so, as oxygen for stock valuations. Do you really think Tesla shares are up 730% this year because it’s making some gains (the quality of those gains is debatable no less) and it was just added to the S&P 500? OR bitcoin prices does he really deserve to be knocking on the $ 30,000 door?

Think again, cheap money from the Fed is doing its part to fuel traders’ speculation in the absurdly valued shares of Tesla and the great unknown asset that is bitcoin. Sorry to burst your bubble, Tesla and crypto fans But hey, the bulls love to see this feverish action right now.

The name of President Donald Trump on a stimulus check issued by the IRS to help combat the adverse economic effects of the COVID-19 outbreak. (File)

Meanwhile, lawmakers finally reached an agreement on a $ 900 billion stimulus plan which will include more direct controls on households. More controls could equate to a better trajectory for consumer spending in early 2021 after a general outburst this holiday shopping season as nervous households slashed.

Enter another for the bulls.

And then there is hope around global vaccination, thanks to the tremendous work of Pfizer and Moderna. Many on the street have modeled that half of the US population will be vaccinated by mid-2021, something that the president of the Bill and Melinda Gates Foundation Melinda Gates tells me it’s a realistic projection.

To be sure, the developments on the vaccine front are good news for weary corporate America executives. They may see their financial statements come to life in the third quarter of 2021 as people leave their homes. With this financial reactivation, the return of dividends (or increases) and share buybacks can come. And to that end, write down another for the bulls on the market.

But the reality is not that everything will work out in the world next year. And that means that not everything will go according to the plan that the market has currently developed. Remember the risks of Kostin, bulls.

Brian sozzi is a general editor and anchor in Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and in LinkedIn.

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