Market Insights: It’s All in the Earnings How is it possible for the global stock market to be up over 11% given the backdrop of the pandemic? Analysis by Terrence Demorest, Chief Investment Officer - Public Markets and ESG
Analysis by Terrence Demorest, Chief Investment Officer - Public Markets and ESG
15 November 2021
Many investors are wondering how it’s possible for the global stock market to be up over 11% given the backdrop of the ongoing pandemic. Above all else, financial markets tend to trade based off of future expectations—and therein lies the answer.
Looking back at March/April of 2020 when the pandemic first started, corporate earnings estimates were immediately slashed to the downside, in some cases quite severely. The global stock markets responded by falling over -33%. By May, though, when the next earnings cycle began, 80% of all companies in the S&P 500 beat their revised earnings estimates by a whopping +19%. That trend has continued each quarter for the past year and a half as corporate earnings continue to outperform market expectations. Refer to the chart below:
While unexpected outside events can influence market movements over the short-term, and stock market volatility has not gone away, long-term markets track corporate earnings. While there were market segments that deserved to trade down at the beginning of the pandemic (retail and hospitality) we continue to be optimistic long-term as corporate profits remain very strong.
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