'A banner year': US GDP will grow 6% in 2021 as businesses feel the full effect of pandemic relief policies, says a chief investment strategist

Reuters / Brendan McDermid
  • Leuthold Group’s Jim Paulsen told CNBC on Tuesday he expects US gross domestic product to grow 6% in 2021 in a “banner year” for the economy.
  • The chief investment strategist explained that several pandemic relief policies that were implemented in 2020 won’t take effect until 2021.
  • This impact — coupled with the fact that the US currently has a higher savings rate than almost 99% of the time in post-war history — will lead to an economic boom once the vaccine has inoculated a large portion of the US population, according to Paulsen.
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Leuthold Group’s Jim Paulsen told CNBC on Tuesday that the US economy will have a “banner year” in 2021. The chief investment strategist expects US gross domestic product to grow 6% next year, putting him on the higher end of overall projections. Bank of America, for example, expects GDP expansion of just 4.5% in 2021.

Paulsen explained that several pandemic relief policies that were implemented in 2020 won’t take effect until 2021. He said typically monetary and fiscal policies take a year or more to have a positive impact on the economy.

“The biggest thing ignored is that policy historically has a long lag relationship to the economy,” Paulsen said. “Most of what we’ve done this last year is really going to start to take hold in 2021.”

This impact — coupled with the fact that the US has a higher savings rate than almost 99% of the time in post-war history — will lead to a boom in the economy once the vaccine has inoculated a large portion of the US population, he said.


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“At some point, we’re going to have a big boost to confidence in this country and unleash people again,” he added. “I think that combines to a banner year … not only here, but globally.”

Paulsen expects the S&P 500 to finish 2021 around 4,100, roughly 11% above current levels. But he also says the market will be prone to volatility before levelling at 4,100.

The investment strategist said he expects investors to take profits once life returns to normal and the economy reopens in 2021. This could result in a 10% to 15% pullback in the stock market, but it will be temporary.

Although many on Wall Street are cautioned investors that sentiment is running too hot in the market as the S&P reaches new records, Paulsen said market “giddiness” will be even more explosive once the vaccine is rolled out, and investors will need to be careful.


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