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.”

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.

breadth of stock market

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