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S&P 500 To Cross 5,000 Next Year As Companies Realize ‘Excess Profits’ And Billions Of Dollars In Spending Are Freed, Jefferies Says




  • The S&P 500 will extend its gains until 2022 and hit 5,000, Jefferies said in a stock outlook note on Tuesday.
  • The stocks will find support for further earnings growth and a huge amount of money to be spent by consumers, businesses and the US government.
  • The economy is expected to grow 5.1% in 2022 but it will be “difficult” to beat the 5.4% growth in 2021.

Numerous records have pushed the S&P 500 up 25% in 2021, and the benchmark is expected to rise to 5,000 in 2022 thanks to continued growth in US corporate profits and massive spending to support the pursuit of economic expansion in the United States, Jefferies said Tuesday.

“The nominal earnings boom is expected to repeat itself in 2022. The gap between nominal GDP and Treasury yields will be wide enough for companies to realize excess profits,” said Sean Darby, global equity strategist at Jefferies, in a research note examining the factors. that will influence the US and global stock markets next year.

Soaring corporate profits helped fuel the S&P 500’s jump this year, with the benchmark approaching 4,700 and hitting a record 66 in the process.

Strong pricing power could help annual earnings growth of around 50% in 2021 sound “plausible enough,” Darby wrote, noting that Jefferies had previously estimated 41% earnings growth for the S&P 500.

“The lesson learned from the post-pandemic recovery is the danger of underestimating the pricing power of companies and the extent to which central banks are happy to let real interest rates negative more like in the 1950s. There is a very strong positive correlation between nominal GDP and the United States. profits, ”the strategist wrote.

Jefferies predicts that the U.S. gross domestic product will grow 5.1% in 2022, faster than in other parts of the world, including the eurozone.

Darby cited spending by U.S. consumers, businesses and government, perhaps even banks, as the engines of economic growth next year.

In fact, Jefferies said U.S. consumers have $ 2.5 trillion in excess savings, S&P 500 companies have $ 1.34 trillion in gross cash and cash equivalents, and plans to The US government’s fiscal stimulus is still deploying all potential funds that will help foster growth in the world’s largest economy. Next year.

The Federal Reserve will likely act as a modest headwind by raising interest rates twice in 2022 and cutting back on asset purchases perhaps sooner than expected. “However, US real interest rates will remain deeply negative,” Jefferies said. Real interest rates are adjusted for inflation. Consumer price inflation in October reached 6.2%, the fastest rate since 1990, largely as energy prices accelerate.

The US economy appears on track to grow at a faster rate in 2021, at 5.4%, compared to next year.

“2022 will be difficult because 2021 is unsurpassable. While base effects will naturally play their part, a look at the recent manufacturing ISM saw the gap between new orders and inventories start to narrow,” he said. Darby said, noting the trend in services most of the US economy was better.




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