The three factors that could push the S&P 500 over 4,000 in 2021

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi discuss the stock market and future outlook with Sanders Morris Harris CEO George Ball.

Video Transcript

JULIE HYMAN: One could argue a good scenario is already priced into stocks, a vaccine rollout, some kind of agreement eventually getting done on stimulus, for example. So what would then be the next catalyst to take us higher? Let's bring in George Ball. He is Sanders Morris Harris CEO.

George, it's good to talk to you. So I guess the other question would be, do we even need another catalyst or is it just enough that we'll see stocks drift higher because we've got the Fed underpinning things, we've got a lot of cash in the system? What do you think in terms of the next move upward?

GEORGE BALL: Well, Julie, as you say, the market is gasping and grasping for some new leadership signal. Vaccines, virus, stimulus, spending are all rather well priced into the market. People have different expectations, but they're pretty much there as knowns in the marketplace. I think the next move, especially if you're a trader, is probably greed. And there is a greed catalyst out there that I think is-- is very influential.

BRIAN SOZZI: George, so if the greed is the next element here, I mean, that, to me, sounds like we could see another 10%, 15%, 20% move in the markets over the next few months.

GEORGE BALL: A, we could. B, I'm actually talking-- and don't usually do this-- about the shorter-term element, and it is the greed of a Wall Street trader who gets paid his or her bonus based on results at year-end. In 75% of the years in which the markets were higher at the end of November, they went up further in December.

Now, part of that, you can say, is the Santa Claus rally theory. But Virginia may be right and there is a Santa Claus, but it doesn't exist on Wall Street. The-- the fact is the people who get paid a percentage of the profits that they make generally at the end of the year will often buy more of the same stocks or bonds in the month of December to protect that bonus element.

Now, they're not doing anything wrongful. They're buying the things that they like the best. But there's a very strong bias to see prices higher in December when the year has been up so far. Now, is that a 20% move? No. But if you look beyond it, there are some other very positive catalysts for the market, I think, that aren't priced there yet.

MYLES UDLAND: And George, I'd love to get your thoughts on what some of those catalysts might be, because we have seen a lot of enthusiasm, particularly around the vaccine and what 2021 might look like here in the US, hopefully a lot more normal than 2020 was. That feels like it's being priced in today. What catalysts are you looking at as we get towards-- towards next year?

GEORGE BALL: Probably three that are very influential and that aren't there-- aren't there. By there, I mean priced into the market yet. One is that there's going to be a good deal of spending, whether it-- and it's likely to be in infrastructure first and before anything else, but that's going to be a major economic stimulus for the markets. And infrastructure is something where Republicans and Democrats can broadly agree.

The second factor that isn't there is an intangible, and that is the evidence that President-elect Biden is using unification as his primary theme. Unification is good for psychology. Look back to the President Reagan era, where he made people feel good. And I think that's a second major factor that-- that isn't there in the marketplace yet.

And the third is that people, and particularly the younger do-it-yourselfers, the Robinhood traders, are discovering individual equities as a place of interest. Part of it's speculative, part of it interest, and they're a bigger and bigger factor in the market and tend to be on the bull side, as opposed to the contrary. So three big pluses that aren't priced into the market yet that could easily push the S&P over 4,000 sometime before midyear next year.

JULIE HYMAN: George, you mentioned sentiment. And I do want to ask you what you're hearing from clients, particularly because I think it's valuable to hear from people who are outside of Wall Street, physically in a different geographic area. You're down in Houston.

And so I'm curious what you are hearing on that front, and in particular wealthy clients who may be happy about that unification theme you were talking about, but maybe not so happy anticipating an increase in their taxes? Is that something you're worried about? And is that affecting the positioning in the market?

GEORGE BALL: All of life is after tax. And higher taxes will impact the wealthy. They'll impact stocks. They'll impact housing prices. They impact everything. So on a relative basis, although taxes will go up and that's not good for people who want to keep more of what they've earned, it's not apt to be a major deterrent out of stocks into other value sets.