These are the top 10 questions investors should be asking for 2021, according to Goldman Sachs

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Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., March 17, 2020.

  • With 2021 right around the corner, investors have a lot on their plate as they navigate rising COVID-19 cases, an incoming Biden administration, and heightened economic uncertainty.
  • Here are the top 10 questions investors should be asking for 2021, according to Goldman Sachs.
  • Visit Business Insider’s homepage for more stories.

Heightened economic uncertainty, a continued surge in COVID-19 daily cases, and an incoming Biden administration are just a few factors investors will have to navigate in 2021.

With those uncertainties in mind, Goldman Sachs listed the top ten questions investors should be asking in 2021 and its expectations, according to a note published on Monday.

Here are the top ten questions investors should keep on their radar for next year.

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1. Will the third wave of COVID-19 cause GDP to fall again in Q1?

Goldman’s answer: No

“Despite the severity of the health crisis, state and local authorities have only tightened restrictions on economic activity modestly on average. Over the next month or two, early vaccination efforts targeting the most vulnerable segments of the population should produce a decline in hospitalizations, the key variable that has most often forced reluctant authorities to impose new restrictions. If so, restrictions are unlikely to get much tighter. We have raised our Q1 GDP growth forecast to +5% on a quarterly annualized basis and see a negative print as unlikely,” Goldman said.

2. Will the virus threat fade enough for dense cities and high-rise service industries to recover?

Goldman’s answer: Yes

“We expect the virus fears that have kept the densest cities and the highest-risk consumer services deeply depressed to fade enough next year for economic life to largely return to normal. To make this prediction concrete, we consider employment in the leisure and hospitality sector in the New York metropolitan area, which collapsed by nearly two-thirds in April and has leveled off at just 63% of the pre-pandemic level. By the end of 2021, we expect it to return to at least 90% of its previous level,” Goldman said.

3. Will the saving rate fall below 10%?

Goldman’s answer: Yes

“Normalization in the most virus-sensitive consumer service sectors should imply a strong recovery in aggregate consumer spending because those sectors now account for the great bulk of the remaining consumption gap. We are confident that consumption will rise quickly once virus fears fade because households have plenty of capacity to spend more, both by turning to the large savings they have accumulated since March and by saving less of their income going forward,” Goldman said.

4. Will full-year GDP growth exceed consensus expectations?

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Goldman’s answer: Yes

“The surprisingly limited long-term damage to the supply side of the economy from the initial collapse in activity during the pandemic” is a surprising theme that has emerged from the pandemic, Goldman said.

“The latest round of fiscal support for small businesses should ensure that the winter virus resurgence does not undo this surprising success story. Similarly, the labor force is also on track to avoid the deep scarring effects seen after the financial crisis,” Goldman said.

5. Will productivity exceed the level implied by the pre-pandemic trend?

Goldman’s answer: Yes

“We see three reasons to believe that the pandemic has also introduced or accelerated longer-lasting productivity gains. First, some of the productivity-enhancing changes in the composition of GDP are likely to persist. Second, the recession is likely to accelerate closures of less-productive companies and business units after a decade-long expansion in which easy access to credit and a supportive business environment made cost-cutting less of a priority and permitted a proliferation of persistently unprofitable companies. Third, the pandemic has presented businesses with new opportunities to save heavily on expenses at surprisingly little cost to final output,” Goldman said.

6. Will the unemployment rate decline by more than expected?

Goldman’s answer: Yes

“We think the pace of labor market improvement will be even faster, for three main reasons. First, workers on temporary layoff still account for over 40% of the newly unemployed since the pandemic began. Second, labor demand remains fairly robust, with as many workers already saying it is easy to find a job as saying it is hard. Third, highly virus-sensitive sectors account for most of the remaining pandemic employment gap. The fading of the virus threat in the first half of 2021 should therefore provide a further jolt to labor demand and, we think, take the unemployment rate to 5.2% by the end of the year,” Goldman said.

7. Will the labor force participation rate rebound meaningfully?

Goldman’s answer: Yes

“We expect participation to rise ½-1pp next year. The decline in participation this cycle appears to be of an entirely different nature. For the most part, workers have left the labor force not because they see job search as hopeless but
because of virus-related obstacles to participation such as health concerns for older workers or a need to care for children who would otherwise be in school. These obstacles are likely to disappear as the virus threat diminishes, and those who left are likely to return to a labor market offering far better prospects of finding a job than last cycle,” Goldman said.

8. Will core PCE inflation exceed 2% at the end of 2021?

Goldman’s answer: No

“Year-on-year core PCE inflation is likely to briefly bounce above 2% next spring as we lap the weakest pandemic base effects. But we expect core inflation to then return to a sub-2% underlying trend for the rest of 2021. We are doubtful that core PCE inflation can sustainably exceed 2% next year because the two largest services categories-shelter and medical services, each worth about one-fifth of the core-are likely to remain soft,” Goldman said. 

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9. Will the Fed begin to taper asset purchases?

Goldman’s answer: No

“We do think that the FOMC will want to start tapering at least a year and a half before liftoff so that it can taper gradually and then pause before the first rate hike. But we do not expect liftoff until early 2025 and most FOMC participants do not expect it before 2024, so that consideration is unlikely to be pressing next year,” Goldman said.

10. Will the average US tariff rate on imports decline?

Goldman’s answer: Yes

“We expect at least some decline in tariffs during President-elect Biden’s first year. New tariffs look very unlikely in our view. We think there is a good chance that some of the narrowly-applied tariffs on steel, aluminum, and other products imported from US allies will be reduced as the incoming administration seeks to mend relations with traditional US allies,” Goldman said.

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