By Tom Burnett CFA
According to the February 5, 2021 issue of the FACTSET earnings report, the final quarter of 2020 will show year-over-year S/P 500 earnings growth of 1.7%. The first three quarters of the year all turned in negative comparisons. The latest forecast is for earnings of $139.97 for the 2020 year, down 14% from the 2019 level of $163.12. In 2021, earnings are projected to reach $173.43, an increase of 23% from the depressed 2020 level. In its July 10, 2020, forecast report, FACTSET projected just $163.17 for the 2021 year. It now appears that analysts believe the negative impact of the COVID-19 outbreak will be confined to 2020 with solid earnings growth expected in 2021. The early projection for 2022 is also positive with a forecast of $199.85, up 15% from the 2021 level.
Despite the improved outlook for corporate earnings, the equity markets remain fully valued. With the S/P 500 trading at 3,900, the P-E multiple on expected 2021 earnings is more than 22x, a very high level on a historical basis.
Tom Burnett CFA is Director of Research