US equity markets, as measured by the S&P 500 index, advanced nearly four percent last week as investors closely monitor the negotiations in Washington regarding additional fiscal stimulus to support individuals negatively impacted by the pandemic. The 2020 Presidential election is now only three weeks away, and Democratic candidate, Joe Biden, has opened up a sizable lead in many polls. It is possible that markets may be reacting favorably to the reduced uncertainty around the potential outcome of the election, but there is still plenty of time for shifts in voter sentiment, as we saw in 2016.
This week, third quarter earnings season will kick-off with large banks like JPMorgan Chase, Goldman Sachs, and Wells Fargo reporting results. The consensus analyst estimate for third quarter S&P 500 earnings is for a decline of 20.5% compared to the third quarter of 2019. However, analysts were anticipating a 25.3% decline in earnings when the quarter began, so expectations have improved over the last few months, which could potentially have helped push stock prices higher. On average, analysts expect the S&P 500 to earn $133 per share in 2020 and $166 per share in 2021, which means that investors buying an S&P 500 index fund are paying 26x for this year’s expected earnings and 21x for next year’s expected earnings, respectively.
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