This week we released both our 2021 Year Ahead Outlook research report as well as our Outlook Webinar, which was f of actionable conclusions for investors.

Today, we wanted to invite you to Watch The Replay, and also summarize the presentation’s bigger points. Moreover, the Webinar included 10 favorable large cap stock ideas that our research portends will likely be market beating performers.

Bottom line: From current levels, our work suggests that the strategic reward/risk tradeoff for the S&P 500 is still tilted towards reward when we forecast out to year-end. We are in the early innings of a major corporate profit recovery that is being powerfully combined with massive amounts of monetary and fiscal stimulus. Thus, our research strongly suggests investors need first to be positioned to take advantage of a favorable equity environment by lowering cash levels and fixed-income allocations. Next, there needs to be some thoughtfulness regarding the two major style shifts occurring and will likely continue to maximize one’s alpha: 1) Growth/FAANG to Value/Cyclicals; and 2) Large Cap to Small/Mid Cap.

Main Macro Assumptions:

  • The U.S. economy will expand between 3.7 – 4.0% yr/yr, which assumes only moderate fiscal stimulus.
  • A global synchronous economic recovery, which helps Cyclical/Value related areas around the world.
  • Despite being a consensus call, we expect the U.S. dollar to continue weakening.
  • Inflation expectations and interest rates drift higher.
  • The Fed remains accommodative for all of 2021 despite the possibility for some rumblings from the bond market vigilantes, and that the “Fed Put” will be in full force during the year.

Bigger Picture Conclusions:

  • U.S. vs. MSCI World ex. U.S. — Moving closer Neutral from longstanding Overweight
  • Stocks vs. Bonds/Cash — Continuation of our heavy Overweight for Stocks
  • Large Cap vs. SMid — Bias down the cap scale for the first time in over five years
  • Offense vs. Defense — Continuation of our heavy Overweight for Offense
  • Growth/FAANG vs. Value/Cyclicals — Continuation of our strong bias towards Value but not abandoning Growth

S&P 500 Targets:

  • 2021 OEPS to end the year at $178, or roughly 25% yr/yr growth versus our expectation that 2020 will finish between $142-146, and a preliminary estimate of $205 for 2022. All based on moderate fiscal stimulus during the year and NOT the large $2T figures being discussed.
  • Profit margins to rise as the top line begins to return to levels achieved Pre-COVID and Corporate America begins to reap the benefits of the significant streamlining of their operations and the lowering of their cost bases.
  • S&P 500 Forward P/E multiple of 20-22x, which assumes that both inflation and interest rate expectations moderately drift up, and Fed policy to remain accommodative.
  • S&P 500 year end price target range is 4100-4510.
Disclosures (show)

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