'That's been kind of lost on people.' Inflation: The Elephant in the Room

Fundamental Equities at investment giant BlackRock. 'That tells you how great earnings growth has been,' says Tony DeSpirito, chief investment officer of U.S. The S&P 500's P/E has drifted down from a high of more than 23 to just over 21 recently, even as the index keeps climbing. 'An earnings-led bull market is much better than a P/E-led bull market it's less prone to sell-offs because it is supported by fundamentally strong earnings,' he says. The market 'melt-up' in 2021 (the opposite of a meltdown) has been led by a melt-up in earnings rather than by the inflating price-earnings ratios that drove stocks in 2020, notes economist and market strategist Ed Yardeni. Expect the strongest growth in industrials and energy stocks, plus the consumer discretionary sector (companies that make or provide nonessential goods or services).įor investors worried that a stock market at all-time highs is too pricey, the strong earnings support should allay some fears. Earnings will come back to earth in 2022, with analysts expecting annual growth more along the lines of 7% to 8%, closer to the long-term historical average. When the books close on 2021, analysts expect profits to be up 49% from 2020 levels. Nearly 81% of companies beat analysts' estimates – in a typical quarter, only 66% do so. companies recorded a brilliant third quarter, with an earnings growth rate for companies in the S&P 500 expected to be 41.5% when all the reports are tallied, according to earnings tracker Refinitiv. Later in the year, in a more temperate post-COVID economy, look to larger-capitalization healthcare and technology names for long-term, stable growth.

markets over international offerings, and we like the looks of small companies, value-priced fare and companies that do well when the economy does and can cash in on supercharged consumer spending. Sign up for Kiplinger's FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.įor now, in broad terms, we prefer stocks to bonds and U.S.

Think somewhere a bit above 5,050 for the S&P 500, or north of 39,000 for the Dow Jones Industrial Average. That means something in the high single digits, plus between one and two points in dividends.

'But like most market environments, this one is a mosaic of risks, some forecastable and some not.'įor 2022, we expect more-normalized stock market returns. 'We head into the new year with a glass-half-full outlook,' says Eric Freedman, chief investment officer at U.S.

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