Research

It’s embarrasing to admit this but in our earnings season preview on April 12, when the consensus estimate reflected a nearly 24% increase, we wrote that S&P 500 Index earnings growth for the first quarter could potentially exceed 30%. Fast forward to today and earnings growth for the quarter is on pace to double—yes, double—that 24% growth rate, which would mark one of the biggest upside surprises ever recorded. Here we look at how corporate America produced such a blowout earnings season and what it could mean for the outlook.

Stocks closed mixed last week as signs of continued economic recovery and upbeat earnings helped some sectors while the struggles persisted for high-growth companies.

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.