Photo: Reuters
NEW YORK (Reuters) - As U.S. stocks scale fresh record highs, investors are trying to gauge whether next year's projected profit rebound will be strong enough to add fuel to the rally.
Analysts are projecting that earnings for S&P 500 companies will rise 23% next year after falling more than 15% this year due to the coronavirus pandemic, according to the Institutional Brokers' Estimate System (IBESA) data from Refinitiv.
Yet stock prices have already staged a massive recovery from the March lows of the pandemic, with the S&P 500 index rising more than 60% from its bottom to its recent record highs amid progress toward a COVID-19 vaccine and hopes for a speedy economic recovery.
The S&P 500 is trading at 23 times expected earnings for the next four quarters, only slightly lower than its June peak of 25 times expected earnings - its highest in roughly two decades.
Those multiples are well above the long-term average of about 15, based on Refinitiv's data. The sharp run-up in U.S. shares since March against a backdrop of still-weak earnings has driven up valuations.
The most economically-sensitive sectors are expected to see the biggest year-over-year profit growth in 2021. Analysts expect energy earnings to jump nearly 600% in 2021, while they project industrial earnings to climb 79%, based on Refinitiv's data.
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