Wall Street is already increasing its 2021 price targets: Morning Brief

Thursday, December 3, 2020

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Why 2021 provides a ‘perfect backdrop’ for the stock market

Just under a month ago, we highlighted work from Jefferies’ global equity strategist Sean Darby who put a year-end 2021 price target on the S&P 500 of 3,750. This call had the S&P 500 rising about 7% from then-current levels through the end of next year.

But with the benchmark index closing at a record high of 3,662 on Tuesday, Darby re-visited just what the year ahead might have in store for investors. And the answer is even higher stock prices.

“Easy monetary policy, a weak dollar, a rebound in the old economy accompanied by a synchronized global upswing is the perfect backdrop for the S&P 500 in 2021,” Darby said in a note to clients published Wednesday.

“We expect above consensus GDP (4.5%) alongside a successful vaccine deployment to act as tailwind for growth while the breadth of earnings will lift cyclicals and value stocks alike. We lift our 2021 S&P 500 target price to 4,200 with expectations of 30% earning growth.

But Darby is far from alone in his bullishness for next year. According to data from Bloomberg, the average of Wall Street forecasts for the S&P 500 next year has the index rising to just over 3,900, a roughly 8% gain from here.

Post-election clarity, COVID-19 vaccine distribution beginning this month across the developed world, and positive investor sentiment have all combined to create a tremendous run for stocks in the last several weeks. And as we covered in the Morning Brief on Tuesday, November was a historic month for stocks with a number of sectors enjoying their best month in decades while the Dow had its best month since 1987.

The equity strategy team at Goldman Sachs led by David Kostin turned heads last month when they wrote in a 2021 year-ahead preview that we were gearing up for a “Roaring 20s” redux as the world gets through the COVID-19 pandemic.

By the end of next year, Goldman expects the S&P 500 to trade at 4,300.

And while the overall indexes continue to charge higher and commentary appears to be uniformly bullish, not all investors are as carefree as recent price action and market forecasts may make it seem.

“The cost to hedge yourself out for the next year is still exceptionally high,” Stuart Kaiser, head of equity derivatives research at UBS, said Wednesday on Yahoo Finance Live. “In a nutshell, that shows you that even though things are much better and market dynamics are much improved, the options market is not quite as complacent as perhaps the price action at the index level would indicate.”

And on Monday, Baird strategist Michael Antonelli told Yahoo Finance this “Roaring 20s” thesis is now starting to become a bit of the consensus view on Wall Street. A dynamic that gives Antonelli — who still remains bullish on this market — at least some pause in thinking about whether sentiment has gone too far.

Though of course this caution can be seen as yet another bullish sign for investors betting on higher stock prices, showing there are still folks out there who haven’t thrown all caution to the wind in this new bull market.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

What to watch today

Economy

  • 7:30 a.m. ET: Challenger Job Cuts year-over-year, November (60.4% in October)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended November 28 (775,000 expected, 778,000 during prior week)

  • 8:30 a.m. ET: Continuing Claims, week ended November 21 (5.8 million expected, 6.071 million during prior week)

  • 9:45 a.m. ET: Markit US Services PMI, November final (57.5 expected, 57.7 in prior print)

  • 9:45 a.m. ET: Markit US Composite PMI (57.9 in October)

  • 10:00 a.m. ET: ISM Services Index, November (55.8 expected, 56.6 in October)

Earnings

Pre-market

  • 6:55 a.m. ET: Dollar General (DG) is expected to report adjusted earnings of $2.02 per share on revenue of $8.14 billion

  • 7:00 a.m. ET: The Michael’s Cos. (MIK) is expected to report adjusted earnings of 59 cents per share on revenue of $1.39 billion

  • 8:25 a.m. ET: Kroger (KR) is expected to report adjusted earnings of 67 cents per share on revenue of $29.99 billion

Post-market

  • 4:00 p.m. ET: Ulta (ULTA) is expected to report adjusted earnings of $1.48 per share on revenue of $1.56 billion

  • 4:05 p.m. ET: DocuSign (DOCU) is expected to report adjusted earnings of 14 cents per share on revenue of $361.78 million

  • 4:10 p.m. ET: Cloudera (CLDR) is expected to report adjusted earnings of 9 cents per share on revenue of $209.2 million

Top News

Modest European open ahead of COVID vaccine rollout and US bipartisan bill [Yahoo Finance UK]

Chinese firms on U.S. exchanges threatened by bill headed to Trump’s desk [Yahoo Finance]

U.S. states plan to sue Facebook next week: sources [Reuters]

House gets ready for historic vote on federal marijuana prohibition [Yahoo Finance]

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