The first piece of news is to let you know that my daughter Elise M. Levy has joined us at Legacy Wealth Planning. Elise, Rose, and I have formed a partnership that will enhance what we can offer to our clients, and we will let you know about these upgrades as they evolve. Elise is currently in the testing and training phase with LPL Financial and is expected to begin working here in the Legacy office to join me in client meetings and interactions within the next month or so. As Elise is licensing and training with LPL Financial, she is also finishing her MBA studies at the University of Nevada, Reno and she is excited to complete these endeavors to move into the practical stage here in the office. She looks forward to meeting and talking to all of you!

On to investing – Stocks fundamentally derive their value from their earnings stream and earnings start with revenue. According to LPL Research, the environment for companies to grow their revenue next year should be excellent with above average potential economic growth and some pricing power from elevated inflation.

Historically, S&P 500 revenue growth is well correlated to nominal Gross Domestic Product (GDP) growth. Nominal GDP growth is real GDP growth (inflation adjusted) plus inflation. Hypothetically, 4% GDP growth next year (consensus forecast of Bloomberg-surveyed economists) plus perhaps 3% inflation (consensus forecast for the increase in the Consumer Price Index) puts a 7% revenue increase in play. Without any change in profit margins (probably too rosy but let’s keep it simple) and some share repurchases to lower the share counts – a near 10% increase in earnings in 2022 looks to be in the realm of possibility. Significant earnings momentum historically is good for stocks and estimates have been raised by analysts over the last six months.

Let’s now look at current market valuations – they are elevated, but strong earnings gains during the ongoing economic recovery and the recent stock market pullback have lowered the price-to-earnings ratio (PE) for the S&P 500 to about 20.5. Interestingly, the S&P 500 is up 16% year-to-date while the consensus estimate for the Index’s Earnings Per Share in 2021 has risen 20% since January 1, showing that stocks are actually cheaper now than they were at the start of the year. LPL believes still low interest rates justify current valuation levels, but if interest rates rise next year as expected, P/E multiples are unlikely to rise and may edge lower. This means earnings growth will likely be the primary driver of stock market gains in 2022.

So, LPL Research remains positive. Yes, there has been volatility and there may be more, but the fundamentals look strong. We live in a world now with prolific social media that is fraught with negativity and inaccuracies. We must keep our heads down and try to grow our assets intelligently, which is what we endeavor to do. Call me if you have any needs or questions at any time – Mark

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Stock investing includes risks, including fluctuating prices and loss of principal.  Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Market Commentary dated 10/4/2021, tracking #1-05196942.  Approved Tracking #: 1-05201134.