What happens after the stock market crashes and booms: Morning Brief

Sam Ro

·Contributor

Thu, Dec 10, 2020, 2:58 AM4 min read

In this article:

Thursday, December 11, 2020

Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

History says stocks can keep going up

The stock market’s 2020 plunge and rebound to new record highs has been truly impressive.

But it’s also been far from unprecedented.

And as investors look ahead to next year, they should keep in mind that further gains would not be unprecedented either. Even with stocks trading near record highs.

In a new 2021 market outlook, analysts at LPL Financial look back at periods in which the stock market crashed to see what history tells us could happen in the near future.

“After such a strong rally from the March 2020 lows, it would be logical to think returns going forward may be more muted,” LPL analysts write. “Reviewing some of the previous major bear market lows—most recently in March 2009—reveals that stocks tended to add gains well after the initial surge.”

Big stock market gains tend to be followed by further gains. (LPL Financial)

“On average, stocks have historically gained about 65% during the first two years of a new bull market after an average 41% gain during year one,” the firm adds.

In other words, if the S&P 500 (^GSPC) added another few percentage points on top of the 60% gain it’s had from its March low, that would be average.

Like its peers on Wall Street, LPL sees a lot of forces powering the market today as supporting further gains this time around. Importantly, they point to what’s expected to be a sharp rebound in earnings.

“We potentially could see S&P 500 earnings growth of 25% in 2021, boosted by cost efficiencies achieved during the pandemic,” LPL writes.

LPL sees the S&P topping out at 3,850-3,900 in 2021. But also like its peers, LPL is telling clients not to be surprised if things turn out to be far better than what historical averages might have investors expecting.

“Favorable prospects for a safe and effective vaccine in early 2021, in our view, introduce the possibility of exceeding these historical averages as stocks did in 2009–10 when the S&P 500 nearly doubled in two years.”

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today

Economy

8:30 a.m. ET: Consumer Price Index month-over-month, November (0.1% expected, 0.0% in October)
8:30 a.m. ET: Consumer Price Index year-over-year, November (1.1% expected, 1.2% in October)
8:30 a.m. ET: Consumer Price Index excluding food and energy month-over-month, November (0.1% expected, 0.0% in October)
8:30 a.m. ET: Consumer Price Index excluding food and energy year-over-year, November (1.5% expected, 1.6% in October)
8:30 a.m. ET: Initial Jobless Claims, week ended December 5 (725,000 expected, 712,000 during prior week)
8:30 a.m. ET: Continuing Claims, week ended November 28 (5.21 million expected, 5.52 million during prior week)
12:00 p.m. ET: Household change in net worth, 3Q ($7.6 trillion in 2Q)
2:00 p.m. ET: Monthly Budget Statement, November (-$200.0 billion expected, -$284.1 billion in October)

Earnings

4:00 p.m. ET: Oracle (ORCL) is expected to report adjusted earnings of $1.00 per share on revenue of $9.79 billion
4:05 p.m. ET: Adobe (ADBE) is expected to report adjusted earnings of $2.66 per share on revenue of $3.36 billion
4:10 p.m. ET: Dave & Buster’s (PLAY) is expected to report an adjusted loss of $1.10 per share on revenue of $109.59 million
4:15 p.m. ET: Broadcom (AVGO) is expected to report adjusted earnings of $6.24 per share on revenue of $6.43 billion
4:15 p.m. ET: Costco (COST) is expected to report adjusted earnings of $2.06 per share on revenue of $42.66 billion