Markets hate uncertainty, but that's about to change as we will soon know who will be president in a few weeks. We will know if there's a new stimulus bill shortly, and we should see whether we have at least one vaccine within two months.
Regardless of the near-term outcomes, the Fed will have our backs, and the economy has enough momentum to carry us well into 2021 when we expect all these issues to be resolved positively. 2021 will be a year of continued aggressive monetary ease, multiple trillion-dollar stimulus programs regardless of who is president, and the roll-out of many effective vaccines by mid-year. We have raised our expectations for economic growth meaningfully for both 2021 and 2022. We expect earnings to be knocked out of the park as managements keep a tight lid on costs, achieve substantial productivity gains, and generate an immense amount of free cash flow, which will be used to hike dividends, buybacks, and acquisitions. Expect operating margins to exceed prior peak levels by the second half of 2021, benefitting from positive operating leverage/tight cost controls, and then go even higher in 2022.
All of this will be occurring against the backdrop of an overly accommodative Fed, which will permit the economy to run hot. There are trillions of excess liquidity in the financial system well above economic needs. Besides the Fed, look at the trillions of deposits held at banks both here and abroad. All this money will be searching for a home, which is another reason we remain favorably inclined towards risk assets. Again, if Biden were to win, we would not expect any tax hikes until the second half of 2022 at the earliest after the economy exceeds prior peak levels. Hopefully, President Biden will see the fallacy of his ways and implement a tax plan that supports growth, higher employment, capital investment, and research
