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No, it's not due to interest rates falling further. Indeed, this year, interest rates are slightly up again, producing a gloomy year in global bonds. The Barclays Global Aggregate index is down 4.3 per cent year to date, meaning that interest-rate risk has gobbled up coupons and then some.

There is in fact a fundamental driver behind the stock price appreciation: earnings. For the S&P 500, returns year to date are supported by a 31 per cent rise in EPS estimates (next 12 months' earnings, according to FactSet). For the Norwegian benchmark index, which is up almost as much this year, estimates have risen by an astonishing 52 per cent.

No more than rosy visions of the future? Oh yes. Looking backward at earnings for the past 12 months, we find an even steeper rise. There's still a bit of guesswork in these figures but, by now, we do know a lot about the past 12 months.

Apparently, then, what may have looked like a Roadrunner act – you know, cartoon figures walking leisurely off a cliff without falling – could be better described as having solid rock under our feet. It just wasn't that visible at first. Once again, market prices (investors) have raced ahead of estimates (analysts).

It's fair to say that analysts are notoriously optimistic. But this year, then, it's been the other way around. Earnings surprises have been unusually positive ever since the pandemic struck – and they still are. Analysts have had to adjust their estimates upwards rather than cut them.

Of course, they may still turn out to be too optimistic. As 2022 progresses, we are likely to see some downward adjustment. That, however, does not necessarily imply falling earnings, just somewhat slower growth.

If it turns out that they've missed the mark by such a margin that earnings drop precipitously, it's a different story altogether. But before you subscribe to that scenario, remember that we have just witnessed the validity of an old stock market dictum: Don't fight the market.

 Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.



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