Fiscal stimulus, which was central to the market rebound in the last year, may start moving to the sidelines over the rest of 2021 and into 2022 as the recovery continues. Economic growth can compensate for the loss of government checks to households and businesses, but potential tax increases may be more challenging for markets to navigate. Business tax increases, in particular, may gradually pull gains out of markets about equal to their size, but with economic growth supporting corporate earnings, we believe a positive backdrop for equities remains in place.
The Fed announced on Wednesday that it will soon begin selling the corporate bonds and exchange-traded funds it had accumulated during the pandemic, an action that some observers interpreted as a harbinger of an approaching change in its easy-money policies. But the below-consensus May job figure on Friday buoyed investors who believe the Fed will not change course soon.
First quarter earnings season was truly remarkable, leaving us little choice but to lift our earnings forecasts just a month after our last increase. Weighing the macroeconomic and business tailwinds against the risks, we believe $187.50—$190 per share is a reasonable expectation for S&P 500 earnings in 2021. The favorable economic backdrop—supported by vaccine distribution, the reopening, massive stimulus, and stronger earnings growth—has enabled stocks to grow into their valuations.
MORE THAN MOST YEARS, it’s hard to look ahead to the next year, to 2021, without looking back at 2020. A global pandemic, a massive economic collapse, a bear market, a surprisingly sharp reversal, a hotly contested election where passions ran high, the impact of lockdowns—it was an unusual year of extraordinary challenges. In 2021 it’s time to restart the engines, but things are going to look different, feel different. 2020
has changed us, the way we do business, the way we connect. It’s also shown us our constants, what works for us, and what we hold on to.
AT THE MIDPOINT of 2020, we’re mindful that it’s been an extremely challenging year so far in the United States and around the globe. We’re in the midst of a pandemic that continues to impact all of us, our communities, and our economies.
AT LPL RESEARCH, as we look forward to the year 2020 and a new decade, some key trends and market signals will be important to watch, including progress on U.S.-China trade discussions, an encouraging outlook from corporate America, and continued strength in consumer spending. Trade risk, slower global growth,
WHEN WE RELEASED our Outlook 2019 - FUNDAMENTAL: How to Focus on What Really Matters in the Markets in December 2018, financial markets were in disarray. Global investors were scared by uncertain monetary policy, fiscal and legislative discord, slowing economic growth, and slackening corporate profits. Despite the increased volatility, we continued to believe that market and economic fundamentals remained generally sound.
AFTER NEARLY 10 YEARS of witnessing the U.S. economy and stock market recover—and thrive—investors are starting to wonder if we’ve seen all this expansion and bull market have to offer. Despite the market weakness we saw at the end of 2018, at LPL Research we expect the U.S. economy to grow in 2019 and support gains for stocks.
Over the past eight years extraordinarily accommodative monetary policy has served as the primary catalyst for spurring continued economic growth in the U.S. and around the globe.
Stock markets, bond markets, the economy, policy — some years they push and pull on each other lightly as markets follow their own path; in others, one influence, such as monetary policy, dominates. But sometimes, often following a period of change, understanding the pushes and pulls and how they interact becomes a key to reassessing market dynamics for the next year and beyond.