Many readers are ready for 2020 to be over. That’s understandable. In a year beset by losses for many families and businesses, and characterized by uncertainties of all stripes, it was a challenging twelve months to say the very least. I encourage readers to think of the new year as a fresh start, and a new chance for a positive outlook.

I will write more in the coming weeks about what I see ahead in 2021, much of which is good news for the markets and the economy. For now, we still have a few weeks left in 2020 and there are a few key themes investors should keep an eye on.

  1. Don’t Underestimate the U.S. Consumer

The Commerce Department said Tuesday that retail spending rose 0.3% in October, a smaller increase from September and the smallest bump in retail sales since May. Many analysts saw the spending moderation as worrying, but I would not write off the U.S. consumer just yet.

A strong rebound in spending was ushered in from fiscal stimulus and a better summer with the pandemic, making comparison growth harder to come by for October. Though the pandemic is surging back into a troubling phase, the holiday shopping season is here, and online shopping continues to thrive. Retail sales at non-store retailers (online) rose 3.1% in October, signaling a shift in consumer behavior as winter approaches and as the pandemic worsens.1

Setting a lower bar for expectations of consumer spending through the end of the year may be a good thing, in my view. Underestimating the U.S. consumer makes it easier for actual spending to exceed expectations.

  1. Earnings Revisions May Temper, Opening the Door for Outperformance

For the 464 S&P 500 companies that reported quarterly results through mid-November, 84.5% beat EPS estimates and a record 75.6% beat revenue estimates. These beats are significantly above the levels we’ve seen in recent years, and I would argue supplied fuel for a big piece of the stock market’s fall rally.2

In a typical quarter, we see companies lowering earnings expectations throughout the earnings season – not so in Q4.

Source: Zacks Investment Research3

However, in the next several weeks I expect many of these corporations to dial back some of their more positive outlooks, again as the pandemic enters a more alarming phase. This tempering of earnings expectations – much like the case with consumer spending – can be viewed as a positive. Lower expectations open the door for outperformance, which markets love.

  1. Capital Rotation in the Stock Market

We noted some interesting trends during what I call the ‘vaccine rallies,’ during which the market bumped higher on news that Moderna and Pfizer had very effective vaccines. One trend was the shift from growth to value. The market posted its strongest one-day rotation into value stocks since 2008, a sign that the bull market is gaining breadth and, in my view, becoming more than just a rally off the bottom.

We saw a similar trend in small-cap stocks, which historically have outperformed in early stages of new bull markets. In the first two weeks of November, small-caps as measured by the Russell 2000 rose +13%, its best two-week start to a month on record. This outperformance marked a stark contrast from earlier in the year, when the pandemic arguably inflicted the most damage on small-cap companies.4 Should small-cap stocks continue performing well for the balance of the year and into 2021, it could be a sign that the economic recovery is ready to charge ahead in the new year.

Bottom Line for Investors

2020 has been a challenging year for many, no matter how you look at it. But I think it is important to keep in mind how resilient the economy and stock market ultimately were in the face of very challenging circumstances. It’s a reminder that even the darkest of times can be overcome.

For the balance of the year, it will be key to watch how consumers respond to the increasing threat of the pandemic, how corporations adjust earnings expectations as a result, and how capital continues to rotate around the markets. Above all, investors should start looking ahead to better times in 2021, which is what I think the stock market has been doing.


1 Wall Street Journal. November 17, 2020.

2 Zacks. November 11, 2020.

3 Zacks. November 11, 2020.

4 Wall Street Journal. November 15, 2020.


Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.