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  • The majority of Wall Street’s biggest firms remain bullish after a wild year that saw stocks plunge into the fastest bear market in March only to rebound to record highs and end 2020 with a 16% gain. 
  • Despite their optimism, many strategists caution about risk factors that could derail the economic recovery and reopening, which is expected to support the next leg of the bull market.
  • We’ve compiled their best recommendations for how to maximize your returns in a year that is expected to carry forward much of the volatility and uncertainties of 2020.
  • Visit Business Insider’s homepage for more stories.

US stocks kicked off 2021 with a broad sell-off, but the biggest firms on Wall Street are looking to ride the bull market’s next leg higher this year. 

Their sanguine outlook is rooted in the economic recovery and reopening that’s been underway. 

“As we enter 2021, the second wave of COVID-19 remains on the upswing, with infection rates and deaths still rising in many places,” said Mike Wilson, Morgan Stanley’s chief US equity strategist in a podcast on Monday.

He continued: “Offsetting these headwinds is the recent passage of another substantial fiscal stimulus, unlimited support from central banks, and the distribution of several effective vaccines.”

Goldman Sachs’ chief US equity strategist David Kostin has a similar view, but he also sees the two sources of support as potential downside risks to his optimistic stock market forecast. 

First, the distribution of vaccines could fail to go smoothly or have the economic impact as expected. 

“A mismatch in vaccine supply and demand would represent a downside risk to our forecast, as would a slower-than-expected rebound in consumer activity even if distribution proceeds smoothly,” Kostin said in a December 18 note.

Second, the extremely accommodative fiscal and monetary policies in place could lead to a sharper-than-expected rise in inflation and interest rates. 

“In their inflation outlook, our economists project that inflation should remain soft due to slack in the labor and product markets,” Kostin said. “However, some investors have expressed concern that rebounding economic activity, additional fiscal stimulus, and sustained Fed asset purchases could lead to a spike in inflation and a rise in Treasury yields during 2021.”

Across the board, top strategists at Wall Street’s biggest firms are signaling that investors should brace for more volatility ahead but stay the course for the reward at the end of the year. 

As Wilson said: “The risk-reward of investing is always greatest when fear is highest because valuation is cheapest.”

Listed below are the recommendations from 10 top strategists on how to maximize your returns in a year that’s expected to be both rewarding and challenging.