I would not take the idea that NGDP growth expectations fell last week too seriously, given the prospect of new taxes that could affect stock earnings and contradictory signals from other markets. It’s probably more likely that, if anything, NGDP expectations rose a bit, driven by higher RGDP growth expectations.
I remain more bullish than not on stocks through 2022, though I am interested to see final earnings numbers for the S&P 500 for the second quarter of this year. I’m thinking we’re on track for this year’s earnings figure to be around $180/share, with the discount rate at just under 4%. If we take the current forward S&P 500 P/E seriously, by the end of next year, the index should at least reach 4920, which would be about an 11% increase. That’s before any certainty over relevant new taxes emerges. S&P 500 futures curve data wasn’t available from the CME this weekend, for some reason, but last week it was only slightly positive. As the numbers summarized above indicate, it is a bit negative through the end of this year.
The effect of any relevant new taxes reflected in bills signed into law will be to lower the S&P 500 on a one-time basis, after which economic growth will determine the future returns.
Note: This post, as is the case with all my posts, should not be construed as offering investment advice. Such advice should be tailored to the individual investor by qualified professionals who, ideally, are fiduciaries.