<p><img src="https://static4.businessinsider.com/image/5fb6e63032f2170011f702b8-2400/2010-11-16t000000z_1911304768_gm1e6bh0g9c01_rtrmadp_3_markets-stocks.jpg" border="0" alt="traders phone screens nyse" data-mce-source="Brendan McDermid/Reuters" data-mce-caption="Traders work on the floor of the New York Stock Exchange, November 16, 2010."></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>The year 2021 is going to be a test of the old saying "timing is everything."</p><p>Take UBS' market forecasts for the first half of the year. Its projections show dramatically different outcomes for stocks and bonds across the world as well as other assets like gold and the dollarand the main differences between its scenarios are when a vaccine for COVID-19 becomes widely available and how well it works.</p><p>That probably isn't a shock to anyone who's watched the market this year, especially its reaction to the progress of three potential vaccines in November. But Mark Haefele, the chief investment officer at UBS Global Wealth Management, writes that a couple of months could separate a continued rally and another sharp correction.</p><p>In a note to clients, Haefele draws up three scenarios and explains their implications and the strategy he recommends if each of them plays out. In each of them, 2021 is a very different year from 2020.</p><h2>(1) The upside scenario</h2><p><strong>How it happens</strong>: A highly effective vaccine is widely available in leading economies by the first quarter. As a result, social activity normalizes by midyear and the GDP of developed countries recovers to pre-pandemic levels by the end of the year.</p><p>Contributing to the good news is a larger-than-expected fiscal stimulus deal in the US and a rollback of some of the Trump administration's tariffs on goods from China.</p><p><strong>Outcome</strong>: The S&P 500 could rise to 4,000 by the end of June, a gain of 12% from its closing level on Wednesday. Haefele says the MSCI Emerging Markets Index would go through a similar rally and the Euro Stoxx 50 would have more upside. Gold would fall as much as 14%.</p><p><strong>What to do</strong>: "Diversify portfolios for the next leg higher in equities by looking beyond the resilient, large, and US based firms that dominated in 2020," Haefele said. "Investors should diversify across G10 currencies or into select emerging market currencies and gold" as the dollar weakens.</p><p>In this bullish world, Haefele says it's good idea to take time to look for the next big thing and think longer-term, keeping an eye out for disruptors that aren't traditional technology companies.</p><p>"Whether it's the transition to a zero carbon economy, the increased need for a more efficient and holistic healthcare system, or the push to further digitize financial servicesthe companies exposed to these trends are expected to enjoy above average growth over the longer-term," he said.</p><h2>(2) The base case</h2><p><strong>How it happens</strong>: The vaccine becomes available in the second quarter instead of the first, and it works but isn't quite as effective as in the most optimistic scenario. That means sporadic outbreaks could continue for a few months and activity normalizes later, as vaccine the rollout continues, so economic activity doesn't fully recover until 2022.</p><p>Geopolitics are also a bit less helpful in this situation, as a fiscal stimulus package is smaller and tensions with China remain an issue for markets.</p><p><strong>Outcome</strong>: Haefele says the S&P 500 could reach 3,800, a 6.5% gain. While that's barely half the upside of the best-case scenario, in this situation stocks in the US do about as well as emerging markets equities and they outperform blue chips in Europe. Gold prices also rise slightly, but don't break the record highs they set this summer.</p><p><strong>What to do</strong>: Haefele says investors should keep sustainability in mind because there's going to be long-term demand for greener technologies, and a <a href="https://www.businessinsider.com/investing-strategy-stock-market-2021-outlook-covid-vaccine-goldman-2020-11">"socially responsible" approach to investing is growing in popularity</a>which is likely to improve the performance of companies that follow that approach.</p><p>Since stocks have less potential in this scenario, he says diversifying into private markets will be more important, and he also tells investors to prioritize yield.</p><p>He recommends doing that by buying emerging market dollar-denominated sovereign bonds, high-yield bonds from Asia, and "crossover bonds that are close to the dividing line between investment-grade and high-yield rated issuers."</p><h2>(3) The 'don't look' scenario</h2><p><strong>How it happens</strong>: The vaccine takes longer to become available, or it doesn't work well enough to quickly provide protection to wide swaths of the population. That further delays a recovery in social and economic activity, and the GDP of developed nations doesn't reach pre-pandemic levels until 2023.</p><p>Meanwhile, fiscal policy is more uncertain thanks to issues like challenges to the results of the presidential election or Congressional partisanship, and China tensions don't ease much.</p><p><strong>Outcome</strong>: The S&P 500 falls to 2,900, a 19% drop from its current levels. The Euro Stoxx 50 also sinks 19% while emerging markets are hit even harder, with the MSCI Emerging Markets index plunging 25%. </p><p>In these circumstances gold would set new records at $2,200 to $2,300 an ounce.</p><p><strong>What to do</strong>: This is far from what most investors and Haefele are expecting for the first half, and it could undo many of the market's 2020 gains. But he says investors should react to conditions like these with a "diversified hedging strategy."</p><p>Its components would include gold, options structures to minimize potential downside, and <a href="https://www.investopedia.com/investing/6-asset-allocation-strategies-work/#dynamic-asset-allocation">dynamic allocation strategies</a>, a highly active approach that involves constantly reacting to changing conditions and buying whatever is appreciating in value instead of buying struggling assets and waiting for them to recover.</p><p><strong>Read more:</strong></p><ul><li><a href="https://www.businessinsider.com/stock-picks-to-buy-cheap-companies-value-economic-rebound-goldman-2020-11" data-analytics-position="2" data-analytics-module="">GOLDMAN SACHS: Buy these 20 deeply underpriced stocks now before the recovery helps them rebound and crush Wall Street's low expectations in 2021</a></li><li><a href="https://www.businessinsider.com/stock-picks-to-buy-strong-returns-low-prices-credit-suisse-2020-11" data-analytics-position="3" data-analytics-module="">CREDIT SUISSE: Buy these 8 stocks now because they're set to benefit from a powerful combination of strong returns and low expectations</a></li><li><a href="https://www.businessinsider.com/investing-strategy-with-top-global-stock-fund-manager-alex-umansky-2020-11" data-analytics-position="5" data-analytics-module="">Alex Umansky has been one of the world's best stock pickers for years, and his fund is making 6 times more than the competition in 2020. He told us the 4 pillars to his investing approach.</a></li></ul><p><strong>SEE ALSO: <a href="https://www.businessinsider.com/stock-picks-to-buy-companies-with-improving-sales-growth-jefferies-2020-11" >Buy these 15 cheap, unheralded stocks that will take off in 2021 thanks to their accelerating sales growth, Jefferies says</a></strong></p><p><a href="https://www.businessinsider.com/best-investing-strategies-for-2021-during-covid-vaccine-rollout-ubs-2020-11#comments">Join the conversation about this story »</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/candy-corn-ingredients-made-of-gelatin-lac-resin-halloween-sugar-syrup-2017-10">What candy corn is actually made of</a></p> Click here to read full news..