Still Looking Ahead, But...

Still Looking Ahead, But... image

The State of the Market

To be sure, stocks of almost all sizes, colors, and shapes have been looking ahead to better days recently. Days when the COVID vaccination process has been completed. Days when social distancing is a distant memory. Days when you don't have to make sure you've got several masks stashed in each car. And days when the economy can return to some form of normalcy.

I think it is safe to say that while the "new normal" is likely to have some semblance of what normal once looked like, many things will be different going forward. For example, my guess is a LOT more people will wind up working from home a LOT more than they had in the past. I could go on and on here. But in short, I'm thinking that many of the habits that folks developed during the pandemic lockdowns are likely to stick around.

The key point on this first Monday of the new year, is the stock market appears to be betting that the new normal economy is going to look at least as good, if not better than, the old normal economy. This, in turn, suggests that corporate profits should improve in lockstep. In fact, the consensus estimate for S&P 500 operating earnings per share in 2021 is projected to be a new record high.

This, in and of itself, is quite a feat given the plunge in earnings that occurred in 2020. According to Ned Davis Research Group, 2020's EPS will come in at around $120.81, which is a far cry from 2019's $157.12. But the good news is that the consensus estimate suggests that operating earnings will improve to about $167 this year.

So, with earnings projected to hit all-time highs, it makes sense that the stock market would do the same, right?

However, the math here gets a little tough to follow - at least on a back-of-the-napkin analysis standpoint. For example, the S&P 500 gained 16.5% in 2020 while operating EPS went from $157.12 at the end of 2019 to $120.81 at the end of 2020. Yes, I get it. And I do understand that investors have decided to "throw out" 2020 and instead look past the forced economic shutdown to better days.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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