February 8, 2021
Calendar fourth quarter 2020 corporate earnings are off to a promising start, with over 80 percent of S&P 500 Index constituents beating consensus thus far (≈ 45 percent have reported). Underpinned by swelling fiscal stimulus, highly accommodative monetary policy, and an impending return to economic normalcy (thanks to Covid-19 vaccines), we forecast U.S. real GDP growth will rebound +4.4 percent in 2021 from a -3.4 percent contraction in 2020. Accordingly, bottoms-up EPS forecasts for the S&P 500 Index continue to rise – expectations are now for +24 percent EPS growth in 2021 and +16 percent in 2022. As the virus is brought under control, a wave of pent-up demand, inventory restocking, and business investment should take hold and drive additional EPS upside for well-positioned companies.
With investor enthusiasm at historical highs and overall stock market price-to-earnings multiples now discounting a lot of good news, stocks are vulnerable to pullbacks on disappointments. Another wave of infections, setbacks in vaccine delivery/uptake, and the emergence of a virus variant that renders current vaccines less effective remain key risks to the outlook. However, we remain constructive on U.S. equities over the intermediate term and think participation in stock market gains will continue to broaden beyond large-cap tech stocks. While lingering uncertainties support continued diversification, we have moved portfolios progressively toward a more pro-cyclical stance.
Sit Investment Associates will continue to operate at the highest level during this outbreak, and we invite you to contact us with questions or concerns. You can reach us at 612-332-3223 or email us at firstname.lastname@example.org. We will continue to post updates about market and economic developments on our website at www.sitinvest.com.