Happy New Year!
To close out 2021, I wrote two pieces for Yahoo Finance: “The 12 Most Important Charts to Watch in 2022,” which I discussed last Sunday, and “4 Stock Market Stories to Watch in 2022,” which I’ll visit briefly today.
First and foremost are earnings. Everything boils down to earnings and expectations for earnings, which are the most important drivers of stock prices over time.
S&P 500 earnings are estimated have jumped 45% year-over-year in 2021 to about $205 per share. In 2022, they’re expected to increase by another 9% to about $223 per share.
While it may look like 2021 set the bar high for earnings, keep in mind that there are a lot of major indicators pointing to pent-up demand – or growth that has yet to be realized – including the sky-high number of job openings, record capex orders, depressed inventory levels that have yet to be restocked, and $2 trillion worth of excess savings consumers are sitting on.
Another big story to watch is what happens with valuations.
There’s a ton to be said about valuation metrics like the forward P/E ratio. One important thing to remember: Contracting P/E ratios don’t necessarily mean stock prices have to fall. In fact, the S&P 500’s forward P/E fell from about 23 at the beginning of the year to about 21 today, even as the index surged 27%. That’s because the expected earnings (E) grew at a faster rate than the price of the market (P).
In other words, the stock market can get cheaper even as prices go up.
Head to Yahoo Finance for the full feature, which includes my conversation with anchors Julie Hyman and Brian Sozzi.
🚨 In the coming days and weeks, TKer’s paid subscribers will be getting lots of data, insights, and commentary shedding light on what’s going on with stocks, earnings, and valuations. If you’re not a paid subscriber, consider upgrading today!
ICYMI, here’s some relevant perspectives on the stock market from TKer:
Despite reports of stock buybacks being at record highs, there’s a strong case to be made that they’re actually below historic average levels. (Link)
Companies stunned analysts in 2021 when they reported record profit margins despite elevated inflation. But get this: analysts are now expecting profit margins to get even wider in 2022. (Link)
Just because the S&P 500 surged in 2021 doesn’t mean it has to struggle in 2022. Just take a look at the historical relationship between annual returns. (Link)
It can be a big mistake to dump stocks when market volatility spikes. (Link)
📈 Stock market record: The S&P 500 closed 2021 at 4,766.18, up 27% from 2020’s closing price of 3,756.07. It was one of the best years ever for the market. Notably, the S&P set new records in each of the 12 months this year, which only happened one other time (2014). The index also closed at new record highs 70 times during the year, the second most of any year in history.
🛍 Holiday sales jump: Spending from Nov. 1 to Dec. 24 rose 8.5% from a year ago, according to Mastercard SpendingPulse. From the AP: “Holiday sales were up 10.7% compared with the pre-pandemic 2019 holiday period. By category, clothing rose 47%, jewelry 32%, electronics 16%. Online sales were up 11% from a year ago and 61% from 2019. Department stores registered a 21% increase over 2020.”
🏘 Home prices are up: U.S. home prices in October were up 19.1% from a year ago, according to the S&P CoreLogic Case-Shiller Index. From S&P DJI’s Craig Lazzara: “We have previously suggested that the strength in the U.S. housing market is being driven in part by a change in locational preferences as households react to the COVID pandemic. More data will be required to understand whether this demand surge represents an acceleration of purchases that would have occurred over the next several years, or reflects a more permanent secular change.“
🌎 $100 trillion economy: From Bloomberg: “The world economy is set to surpass $100 trillion for the first time in 2022, two years earlier than previously forecast, according to the Centre for Economics and Business Research… China will overtake the U.S. in 2030, two years later than forecast a year ago.“
Check out this cool visualization of the world economy courtesy of Visual Capitalist:
Up the road 🛣
It’s a new week in a new month in a new year. This means we’re about to get a lot of data on how the previous year ended.
The main event this week will be the December U.S. jobs report, which will be released at 8:30 a.m. ET on Friday. Economists estimate U.S. employers added about 400,000 jobs during the month. However, it’s unclear to what degree the emergence and spread of the Omicron variant of COVID may have impacted economic activity when the data was being collected.