stocks

Stock Market is Expecting a Big 2021 Earnings Comeback

So why are stocks so high again? It comes down to the recovery in earnings. Here is data from Factset on earnings expectations the rest of the year and now 2021.

Estimated Change in Earnings from Insight Factset Reports

You can see two things. First, earnings expectations for the year are now starting to flatten out. But now we have an idea of earnings expectations for 2021: Growth of almost 30% over 2020. That would make 2021 earnings equal to 2019 earnings.

The question is will earnings recovery that quickly. In the 2007-09 recession, it took earnings 4 years to recover. In 2001, it took earnings 3 years to recover. This would be 2 years.

By Christopher Schwarz, ago

A Five Headed Market

Many stock indices have recovered substantially from the lows in March. However, a lot of that is simply due to the largest 5 stocks in the market. (Apple, Microsoft, Amazon, Berkshire Hathaway, and Google)

Here is the average return of the top 5 stocks vs. the Wilshire 5000 return minus those 5 stocks (value-weighted).

Average return of the 5 largest stocks and the rest of the market (value-weighted)

While you have seen your returns go up outside those 5 stocks, you can see you are well below your all time high.

The question is how is this gap made up? Do the top 5 stocks fall? Do the bottom thousands of stocks rally? We’ll see what happens.

By Christopher Schwarz, ago