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Outlook 2021: The Bull Market in Stocks Continues

Outlook 2021: The Bull Market in Stocks Continues

December 09, 2020
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Tuesday, we released our 2021 market views in Outlook 2021: Powering Forward. We are extremely proud of this report and we can’t wait to hear your feedback!

As we explain in Outlook 2021, we anticipate a strong earnings rebound in 2021 will help stocks grow into their current valuations. “The earnings story isn’t just about 2021,” explained LPL Financial Chief Market Strategist Ryan Detrick. “We see S&P 500 Index earnings per share of $190 by the end of 2022, well above the previous record of $163 in 2019 before the 2020 recession started.”

View enlarged chart.

Three other main takeaways include:

  • We see an S&P 500 Index fair value target range of 3,850–3,900 in 2021 with potential for further upside if the production and distribution of vaccines exceed expectations.
  • Growth-style stocks may continue to perform well next year, but we expect participation to broaden, which could boost cyclical value stocks.
  • Early-cycle positioning and prospects of a strong earnings rebound may provide tailwinds for small caps.

Lastly, as we’ve mentioned here before, overall breadth has been very strong, suggesting many stocks are participating in this bull market. Market breadth is a key signal for continued strength, demonstrated by examining how many stocks are above their 200-day moving average. Many stocks above this long-term trend line suggest any pullbacks should be used as a buying opportunity.

As shown in the LPL Chart of the Day, when more than 90% of the components in the S&P 500 are above their 200-day moving average, future returns have been quite strong. In fact, looking at the previous 11 times this happened, the S&P 500 was higher a year later 10 times and up a solid 10.5% on average.

View enlarged chart.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. All index and market data from FactSet and MarketWatch. This Research material was prepared by LPL Financial, LLC. Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

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