2020 In With A Whimper, Out With A Bang – Equity Bulls Have High Hopes For 2021

Equity bulls hope the latest downward revision does not turn into a trend. Although the fact remains that historically the sell-side tends to start out optimistic and then gradually lower the numbers as the year progresses. The other thing is that valuations already are at nosebleed territory.

Companies will start reporting their December quarter next week. Using the $36.05 expected to be earned in 4Q20, the S&P 500 traded at a towering 31.2x on trailing four-quarter earnings (Chart 6). Even if this year’s estimates come through, the forward P/E multiple drops to still-elevated 22.9X by 4Q.

The thing is, chasing winners, not worrying much about valuations, has worked thus far. These are obviously folks investing in ‘it is different this time’. A lot of things have to fall into place for them to pull through another solid year, including how flows behave, how margin debt behaves, how foreigners behave or how buybacks behave, for that matter.

A lot of this likely will be called into question should the S&P 500 lose two levels: 3640s, which is where the index peaked on the day the Pfizer news came out, and 3580s, which was the high hit on September 2. Until then, bulls hold the momentum card.

Thanks for reading!

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