Back in January, I laid out potential year-end levels for stocks based on earnings estimates at the time. Those estimates are now useless. Sorry.

In my defense, I warned that consensus numbers should be taken with a grain of salt. But I certainly didn’t anticipate how swiftly earnings projections would fall. Take a look at the expectations for 2020:

In just a few short months, analysts have retracted initial expectations of 10% EPS growth, and now look for a 22% EPS decline for the year. Given the circumstances, I think it’s time to refresh the 2020 outlook. As I explained in January, though, using a forward earnings multiple to calculate a year-end target means using estimates for 2021, not 2020.

And next year’s EPS estimates have not fallen nearly as far. On investor conference calls over the last few weeks, companies have consistently, though not unanimously, relayed their beliefs that 2Q2020 will mark the trough for net incomes. Analysts agree. The consensus estimate for 2021 implies a recovery in earnings of more than 25% to $162. But a recovery is just that – $162 is roughly the same level of earnings achieved in both 2018 and 2019.

To sum things up, we’ve gone from using $193 in S&P 500 EPS for 2021, to $162.

One thing that hasn’t changed since January? Premium valuations. Stock prices have snapped back in dramatic fashion from their March lows, while earnings expectations have continued to fall. The result: valuation multiples are at their highest levels since the Dotcom era.

Whether stocks can maintain such elevated valuations is anyone’s guess. But we can’t rule anything out. Here’s how the S&P 500 will look at year-end for a range of multiples, given the current 2021 EPS estimate prevails. (Since January, I’ve expanded the range to include 24x.)

Profits are set to fall by a quarter, but thanks to a 21x price/earnings ratio, stocks are on pace for another year of gains.

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