Another Year of the Unprecedented Bull
S&P 500 2021 Year-End Price and EPS Targets: Base Case: 4,800; $210
Periods of heightened emotion, fear, rhetoric and overreaction clearly impacted decision-making in 2020, helping to define one of the most unprecedented stock market periods in history with the need to make “the call” by investors and pundits alike never more prevalent.
The believability factor of the bull market will once again be in question throughout 2021.
Unprecedented Ingredients Beseech Unrivaled Results Again in 2021
P/E has expanded considerably during this bull market, but valuation needs to be considered in the context of historically low interest rates. We expect S&P 500 P/E to remain above-average, but see substantial multiple contraction in the coming months as earnings continue to drive returns.
With revisions still very strong, we believe the corporate earnings growth recovery will persist through year-end and ultimately surpass bottom-up consensus estimates.
We remain optimistic and see further upside from current price levels as the economy and society slowly transition back to normal.
As such, our 20-year secular bull market thesis is alive and well, with March 23, 2020 representing the reset (ctrl-alt-del) between the unprecedented cyclical bear that occurred in Feb/Mar and the next 10 years of our secular bull market call.
As investment strategists, we are big believers in putting things into context and providing historical perspective rather than relying on a few individual data points to make broader market conclusions. As such, the purpose of this report is to dissect several pieces of negative rhetoric accelerating among investors related to seasonality, “scary” under the surface market statistics, and the perception of peaking earnings revisions.
Main Points :
Historical Performance Patterns Point to a Bumpy End to 2021, but US Stocks Should Continue Their Progress Higher
September has historically been the worst month for US equity performance and also one of the most volatile
When YTD performance through August falls in the 80-100th percentile like it has this year, US stocks rise an additional 4.3%, on average, in the last four months of the year with gains occurring ~85% of the time
Putting “Scary” Market Statistics Into Perspective
When the S&P 500 last closed at a new high on 9/2/21, 30% of the index was more than 20% off their all - time highs, well below the historical average of 39%
The median S&P 500 stock was 8.9% off its high on 9/2/21, much lower than the historical norm of 12.1%
Peaks in Earnings Revisions Breadth Do Not Spell Doom for Market Performance
Peaks in our S&P 500 earnings revisions composite do not translate into market losses, on average
Revisions breadth is still strong with ~79% of all FY1 & FY2 EPS revisions in the past 60 days being positive , which represents the second highest monthly reading since 1990
Source: BMO Investment Strategy Group
To read the full report, click here. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. For disclosure statements, including the Analyst certification, please refer to page(s) 8-10 of the report.