S&P 500 Notches 70 All-Time Highs In Biden’s First Year

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The S&P 500 closed at 4,766, a rise of 1,010 points, or 26.9%, for the year and a rise of 90% in three years. It hit 70 record highs during the year, up from a closing high of 4,793 last Wednesday and a high of 4,809 a day earlier.

The Dow closed at 36,388, an increase of 5,732 points, or 18.7%, for the year, and the smallest increase among the three major indices. It hit an all-time high of 36,489 on Wednesday and an intra-day high of 36,679 on Thursday.

The Nasdaq closed Friday at 15,645 and rose 21.4%, or 2,757 points for the year. Its all-time closing high stood at 16,057 on November 19, with an intra-day high of 16,212 on November 22. While the S&P 500 and Dow were down less than 1% from their closing highs of 0.6% and 0.4%, respectively, the Nasdaq closed down 2.6%.

While it is easy to set a new record once a new one is set, the economic and financial environment has to be in sync for this to happen. The US economy came back with a vengeance in 2021 as COVID-19 vaccines became available and the Fed continued to pump money into the markets. This allowed the index to reach a record high of 70 closing this year, the second highest number apart from the 77 closing high of 1995, as tracked by Charlie Billello at Compound Capital Advisors,

Markets remained strong in the latter half of the year as they climbed the proverbial “wall of worry” with concerns about the Omicron version causing more supply chain issues and slowing the economy, with the Fed intensifying its tapering program. and raised interest rates next year and inflation remains high.

Earnings lead the way but slow growth in 2022

S&P 500 earnings on track to grow 46.3% this year Per Jon Butters on FactSet, but the better comparison is an increase of 26.0% from the pre-pandemic year 2019. Earnings growth allowed markets to hit new highs, even though the index’s P/E multiple contracted slightly. While earnings growth should slow in 2022, they are still expected to increase by 8.7% to 223.48 for the S&P 500.

P/E multiplier fell slightly during the year

When the market fell dramatically in early 2020, when the coronavirus first began spreading the index’s decline, earnings were more than cut, resulting in the P/E multiple falling to 13x. Then a cut in analysts’ estimates and a rebound in the index saw the P/E multiplier rise sharply to 22x.

Then when companies were able to cushion the impact of the virus on their bottom line and the Fed pumped trillions of dollars into the financial markets, the market assigned much higher multiples to earnings as interest rates fell and it became TINA Markets. Or “there is” no option for shares to generate returns.

The S&P 500 was able to break record after record in 2021, even as the earnings growth remained slightly undervalued, with several declines in market earnings. It’s not surprising to see several declines in the index’s P/E for the year as the Fed eventually announced it would slow its bond purchases and signal a rise in interest rates next year.

What’s in store for the market in 2022?

While the S&P 500’s earnings growth rate will almost certainly slow down from 46% in 2022 to 46% in 2021, it is forecast to grow 8.7% and be 37% higher than pre-pandemic in 2019. If the P/E multiplier can stay the same in 2022, a 9% growth in the market would be considered very solid, especially after such a strong performance this year. However, the biggest risk to the market’s equation of earnings multiplied by the P/E ratio to provide a value for the index is a drop in the current 21x multiplier.

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