What does this tell us?
Well, it could be argued that the consensus view on earnings for this year is particularly bullish – a warning sign for some; however, the base effects are favourable and the economic data points to improvements ahead. So, we can have genuine optimism for the health of companies in 2021 – and this is not just true for the US.There has been positive growth across most major markets, especially so for emerging markets, and excluding Europe, although there has been improvement. Positive earnings growth equals positive share price growth, right? Well not quite as markets are not rational, and simple equating of the two could cause investors problems; equity markets could get ahead of the fundamentals and reach exuberance levels, or ignore the positive fundamentals altogether and dive on any negative headlines.
What we think this chart tells us is that there are positive company fundamentals out there, and that doing the research and investing for the longer term makes sense.