3 Reasons to be Bullish in 2021: Part 2

3 Reasons to be Bullish in 2021: Part 2

Posted On January 29, 2021 11:37 am

In part one of this series, I explained how economists and health experts were optimistic about the end of the pandemic in 2021 and the best economic growth in 36 years.

  • this is the backdrop for what Goldman Sachs thinks could trigger a 25% two-year rally
  • and JPMorgan thinks could lead to a 25% stock rally in 2021 alone

But there is one final catalyst that is the most important of all and could make or break the S&P 500 in 2021.

Reason 3: Corporate Earnings Are Justifying More Of This Rally Than Many People Realize

At the start of January FactSet’s John Butters noted something remarkable.

Normally, before every earnings season, analysts cut earnings growth forecasts by 4.2% to 5.2%.

  • this is why 75% of companies on average, beat expectations by about 5% ‘
  • and management teams look good and stock prices tend to do well during earnings season

Only when unique secular events, such as 2017’s tax cuts or the end of this pandemic, are likely to cause companies to still blow out results, are analysts confident enough to raise expectations.

That’s what’s been happening for the past month. With consensus S&P earnings growth steadily rising week after week. Yet despite those rising expectations, this earnings season is proving one for the record books.

  • so far FactSet reports 86% of companies are beating expectations vs the 5-year average of 74%
  • so far companies are beating expectations by 22% vs 6% 5-year average

This is with analysts steadily raising the bar for Q4 results, which so far corporate America is crushing.

The $750 billion to $1.1 trillion in stimulus that most economists expect in March, is expected to be matched by $1 to $1.5 trillion in infrastructure spending starting in June.

That spending will take several years (Moody’s estimates three) to fully work its way through the economy. But by the time it does, America’s unemployment rate is expected to be around 4.0%, one of the lowest levels in 50 years.

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Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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