2021 MARKET OUTLOOK The Thorny Issue of Rosy Projections By Will Nasgovitz HEARTLAND ADVISORS Aside from the occasional bump in the road, equities have spent much of the last six months on an upward trajectory from the COVID-19 lows of spring. The momentum has occasionally stalled as investors trained their attention on updated virus numbers or grew wary of extended valuations for many areas of the market, but by and large, selling pressure has been short lived. The optimism in place for much of the period has been grounded in the belief that the combination of an accommo-dating Federal Reserve and government stimulus would propel earnings to pre-pandemic levels in the coming quarters. Source: Furey Research Partners, FactSet and Standard & Poor’s. 1/1/1990 to 9/30/2020. This chart shows Large growth companies have been among the the difference in returns, as a percentage, for the best and worst performing sectors in the S&P 500. top beneficiaries, as investors seem to continue to Past performance does not guarantee future results. chase yesterday’s winners. The dynamic has led to the gap between top and bottom performers reaching levels not seen since the “Dotcom” era, as shown Learn more at heartlandadvisors.com. to the right. Disclosure: Traditional safety nets such as strong balance sheets or attractive valuations were an afterthought and reasonably Past performance does not guarantee future results. priced businesses lagged. Investing involves risk, including the potential loss of principal. While Wall Street has shown a willingness to look past There is no guarantee that a particular investment strategy will be successful. debt levels, government deficits and private sector leverage shot into unprecedented territory raising questions about Value investments are subject to the risk that their intrinsic value may not be recog-the sustainability and true underlying strength of the U.S. nized by the broad market. economy. If the economy is less robust than conventional The statements and opinions expressed in the articles or appearances are those of wisdom suggests, many of the richly valued businesses with the presenter. Any discussion of investments and investment strategies represents rosy growth forecasts could stumble in the quarters ahead. the presenters’ views as of the date created and are subject to change without Despite investors clamoring to bid up large growth compa-notice. The opinions expressed are for general information only and are not intended nies, we’ve stuck to our time-tested formula that emphasizes to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true. finding growing companies, with solid balance sheets that are trading at discounts to what we view as their intrinsic worth. Economic predictions are based on estimates and are subject to change. In the past several quarters, our process and attention Heartland Advisors defines market cap ranges by the following indices: micro-cap to detail has led us to winners in a wide range of industries. by the Russell Microcap®, small-cap by the Russell 2000®, mid-cap by the Russell While the catalysts among top performers has varied, these Midcap®, large-cap by the Russell Top 2000®. businesses shared the common trait of valuations that we Heartland’s investing glossary provides definitions for several terms used in this article. found far more compelling than the multiples paid by momentum investors for a handful of tech stocks in the S&P 500. We believe this fundamental approach can at times require patience but also is the best way to help clients achieve their goal of capital appreciation. n Will Nasgovitz is CEO and Portfolio Manager of Heartland Advisors. WealthManagement.com • JANUARY 2021 • 85