It’s that time of year again to dust off the crystal ball, peer intently into the future, and hazard a few guesses about what the stock market has in store for 2021.
Yes, the stock market is a bit pricey, bordering on “bubble-ish,” which suggests it could suffer a significant correction sometime during the year.
That said, three powerful trends are likely to drive certain sectors of the market to even loftier levels.
So in today’s Smart Money, let’s take a look at those three trends.
And at some opportunities within each one …
2021 Trend No. 1 — The Battery Metal Boom
The first major trend that could produce investment winners in 2021 is what I have been calling the Second Electric Revolution — the massive worldwide transition from combustion-based modes of power generation to renewable modes that feed an array of electric and battery-based technologies.
Because of this revolution, the upcoming decades will require spectacular volumes of nickel, copper, manganese, lithium, and other battery metals.
Wind and solar energy, for example, are up to 37 times more copper-intensive than conventionally generated energy. Electric vehicles (EVs) are also metal-intensive.
Unlike traditional internal combustion vehicles, EVs are essentially batteries on wheels … and batteries are basically just hunks of metal.
The average plug-in electric vehicle requires about 200 pounds of copper, which is nearly four times what a midsized internal combustion vehicle requires. Depending on the exact battery chemistry, these vehicles also contain about 50 pounds of nickel, along with meaningful quantities of manganese, aluminum, and/or lithium.
Day by day, these “metal hogs” are gaining in popularity and taking market share from internal combustion vehicles.
Every major automobile company on the planet is ramping up production of EVs. The world’s auto manufacturers will be producing more than 230 different EV models next year.
In 2018, the global electric vehicle market totaled about $40 billion. But according to Wintergreen Research, that number will soar 40-fold by 2025 to reach $1.5 trillion in annual sales.
These eye-popping projections seem to grow by the day.
But the EV industry is not the only new source of battery metal demand. Most of the world’s major economies are accelerating their clean-energy plans and doing so with technologies that are increasingly metal-intensive, like energy storage.
Clean energy has become a massive business worldwide — one that measures itself in the trillions of dollars. That’s why select mining stocks could shine brightly in 2021.
One prominent example is Freeport McMoRan Inc. (NYSE:FCX), the stock I named at the end of 2019 as my pick in the InvestorPlace 10 Best Stocks for 2020 contest. (In that contest, among InvestorPlace’s top financial analysts, I placed No. 1 … though I came in No. 3 overall.)
Although the stock has doubled this year, I expect it to continue moving higher in 2021. But Freeport won’t be alone. Many other “battery metal” plays could dazzle investors over the next 12 months.
The Second Electric Revolution will “make it rain” on the mining sector for years to come.
To find out how to get several of my battery metal recommendations, click here.
2021 Trend No. 2 – The Worldwide 5G Rollout
The burgeoning global 5G deployment should also provide some big success stories in 2021.
That’s because 5G isn’t simply the thing-that-comes-after-4G. It is a uniquely powerful investment opportunity that will deliver outsized gains for many years to come.
We’re on the cusp of a 5G revolution … and this revolution will create enormous opportunities for select companies and their shareholders.
The nascent 5G boom is a powerful megatrend that will provide a wide range of investment opportunities — beginning with constructing the actual 5G infrastructure throughout the world, and then continuing with the vast range of technologies and business applications that the 5G infrastructure will enable and supercharge.
Trillions of investment dollars will flow toward and through 5G infrastructure over the next several years, no matter how well or poorly the global economy is faring.
To review, 5G is the next generation of mobile broadband that will replace or augment existing 4G LTE connections. 5G technology drastically improves upload and download speeds, while also improving latency, which is the time it takes devices to communicate with wireless networks.
The current 4G network delivers around 100 megabits per second. But once 5G rolls out, that number jumps to 10,000 megabits per second — or 100 times faster than the current speed!
What does “100 times faster” mean? It means that an entirely new generation of technologies may become feasible and flourish.
Whereas 4G provided the network speeds necessary to run online apps and mobile streaming video and audio, 5G represents a monumental leap forward. It provides the foundation for a whole host of “gee-whiz” technologies, including:
- Autonomous vehicles
- Healthcare technologies like telemedicine and remote robotic surgeries.
- “Smart factories” that integrate machine-learning processes with human oversight — i.e., “cobotics.”
- Internet of Things (IoT) — a vibrant, high-speed network of physical objects — things — that are embedded with sensors, software, and other technologies for the purpose of exchanging data and “communicating with” other devices, systems, and/or people.
Each one of these new technologies, by itself, will produce trillions of dollars’ worth of commercial activity over the coming decade.
Qualcomm estimates that 5G networks will generate a whopping $13.2 trillion in global sales activity by 2035.
Typically, an industry measures its growth potential in the billions of dollars, not trillions. And earlier this week, China upped the ante on 5G growth by unveiling ambitious new plans to nearly double its 5G wireless capacity in 2021.
Simply stated, 5G is the newest of the make-or-break innovations that will accelerate technological advances.
No company or country can afford to ignore 5G or to lag behind constructing and utilizing it. This new network will quickly become the essential oxygen of the coming tech-based economy … and the dollars involved will be astronomical.
2021 Trend No. 3 — “Easy Money” Makes Hard Money Shine
The third and final major trend that could pay dividends in 2021 is something we call “easy money.”
Not to be confused with Eddie Money, the late 1970s rock-’n’-roll star, easy money is a catch-all term to describe a condition of ample — or “excess” — liquidity in the financial system.
The term refers to the result of fiscal and monetary policies that combine to cause “excess liquidity” to course through the U.S. financial system.
Often, easy-money conditions produce rising inflation, which usually produces a great, big rally in gold and other commodities. That’s why the gold market may be offering one of the most promising trades of 2021.
Although gold has been slumbering for the last several months, it may be reawakening soon … thanks partly to what I show in the chart below.
The U.S. Dollar Index (DXY) just touched a new two-year low, and its price trend is unmistakable. It is heading lower.
A weakening dollar is a typical result of easy-money conditions … and is typically good news for gold.
At least that’s what history tells us.
For example, the gold price jumped 20-fold during the 1970s — a period when the Dollar Index slumped 30%. Two decades later, as the Dollar Index was tumbling 40% between 2001 and 2011, the gold price rocketed more than 600%.
Moving from this ancient history to recent history, the Dollar Index topped out at the end of 2016 and has drifted 12% lower since then. Over that identical time frame, the gold price has advanced 60%.
If the dollar’s downward trend gains momentum, the gold price should continue trending higher — and perhaps a lot higher.
But one additional gold-friendly trend is also making an appearance: The U.S. federal deficit — i.e., the amount of money the government borrows and spends in one year — has rocketed to the highest level since World War II.
Today’s deficit spending is simply off the charts. The U.S. deficit during the last 12 months has soared to 15% of GDP.
Big, fat deficits often beget rising inflation, which usually triggers the gold-buying impulse. That’s because massive government spending always leads to some form of money printing, which is literally the thing we call inflation.
In times past, the U.S. government would be somewhat coy about its money-printing activities. But no more.
These days, the government runs its printing presses in broad daylight, extolls them as sophisticated monetary tactics, and adorns them with elegant names like “quantitative easing.”
So no one should be shocked if the upcoming inflationary trend becomes shockingly large… or simply larger than expected.
This new inflationary trend may be underway already.
According to the United Nations Food and Agricultural Organization’s monthly index, global food prices rose 6.5% from a year ago in November – hitting a new five-year high.
Likewise, the Bloomberg Agriculture Spot Index has jumped more than 30% since May and recently touched a new six-year high.
Food prices represent only 14% of the overall Consumer Price Index (CPI) calculation, but they are an important and telling input. If food prices are rising, genuine “Main Street” inflation is on the rise.
But you can be sure that no one in Washington is losing sleep over rising food prices … or the future threat of a new inflationary trend.
“Generals,” as the saying goes, “always fight the last war.” And for more than a decade, the “generals” at the Federal Reserve have been waging war against deflation, not inflation. The days of inflation fighting at the Fed are long gone.
Similarly, in the halls of Congress, politicians no longer fret about massive government deficits. On the contrary, most politicians view deficit spending as a kind of miracle elixir that can cure a wide variety of economic ills.
In other words, both monetary and fiscal orthodoxy are a thing of the past. The Fed doesn’t care about inflation, and politicians don’t care about deficits.
But the gold market does, which is why the yellow metal might shock investors next year by soaring to more than $3,000 an ounce.
At least that’s what my crystal ball seems to be saying. Let’s follow up on this forecast at the end of 2021 to see if I need to toss my crystal ball into the trash … or polish it up again and discover what it reveals about 2022.
Wishing everyone a healthy and prosperous New Year!
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.