Timing is everything. By delaying the signing of a relief package, President Trump ensured that Americans won’t receive any financial assistance until Q1 of 2021. The uncertainty prior to the Christmas holiday weekend may or may not have curtailed consumer spending.
In addition to that, the Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation programs expired the day before the bill was signed. They were renewed, but recipients may miss a week of payments, pushing more money into 2021.
With multiple Covid-19 vaccines in distribution mode, the first quarter is already looking like a turnaround point for a country under siege. Combined with the influx of new cash, will this lead to increased consumer spending? Behavioral analysis suggests that it will.
Post-Christmas Market Uptrend is an Encouraging Sign
The Dow jumped 204.10 points on December 28th, the day the relief package was signed. The S&P rose 32.30 points. Nasdaq went up 94.69 points. This all happened before dime one of government relief was released to consumers or business owners.
Despite a tumultuous year and a last-minute Q4 sell-off, the S&P 500 will close out 2020 with a better-than-average annual gain of 15%. Can we expect to see another double-digit increase in 2021? Increased consumer spending in Q1 could help make that happen.
It’s a positive outlook. Don’t get overconfident. Many experts feel that the market is overbought by nearly 10% right now, and stimulus money in the economy could push that number higher. It’s fair to assume we’ll see an adjustment at some point during the new year.
Dates to Pay Attention to in January
Our situation is unprecedented, so applying old behavioral rules to the new year may not be the right way to go. I read an article on Criteo last year that said people look for new jobs, shop for homes, and plan vacations in January. I wouldn’t bet on any of those in 2021.
Much as I hate to admit it, there are some political situations in January that could derail the economic recovery, at least temporarily. The Georgia runoff for the last two senate seats is one of them. It happens on January 5th and could change how economic policy is determined.
A lesser-known date is the January 6th electoral college certification vote by Congress. That’s the day all the dancing ends and we can prepare for a Biden inauguration on January 20th. If you don’t think that affects the stock market, you haven’t been paying attention.
Consumer Discretionary Picks and Non-Picks for Early 2021
Last week, I wrote about post-vaccine stock picks. I recommended a number of health care stocks to invest in and made some commonsense projections. As I expected, Amazon and eBay spiked. Bitcoin plateaued on Christmas Eve and then resumed its meteoric rise.
My consumer discretionary pick in that article was Booking Holdings Inc (BKNG). They’re still climbing and I’m counting on them to be a big gainer in early 2021. It may take a few months, but once Covid-19 numbers start to come down, the travel industry will benefit big time.
Out of curiosity, I did a search for “best consumer discretionary stocks” and came up with “best” lists from Investopedia and the Motley Fool. The Fool is playing it safe, betting on Nike, Starbucks, McDonalds, and TJX. I’m okay with those. You might not lose money on them.
Investopedia, as expected, was a bit more thorough. They didn’t include BKNG on their list, which was disappointing, but they do mention Etsy (ETSY), which I’m watching for a low buy on a downtrend right now, and eBay (EBAY), a stock I wouldn’t hold if it was given to me.
Consumer Behavior will be Different in 2021
This is the Common $ense portion of this article. We just spent ten months locked in our homes, shopping online. Did you go to eBay for an auction or Amazon (AMZN) for one-click buying? I’d rather know the price up front than bid what I hope the product is worth.
One of the under-the-radar stories you may not have paid attention to in 2020 was the eBay transition from Paypal (PYPL) to Adyen, a move they announced in 2018 that took effect this year. Uber, Netflix, and Spotify use Adyen, so on the surface it seems like a good move.
What eBay could not have predicted was the changes in consumer behavior that adversity and uncertainty during the pandemic have brought about. In 2018, few people cared how their payment was processed. Today, that has changed. Paypal is a trusted brand name.
Stimulus money will be spent in January, but it won’t be thrown about on frivolous shopping sprees. If you’re looking to invest in the consumer discretionary sector, do your homework. Would you trust the company as a consumer? If so, invest your money in them. If not, don’t.
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