Click image to enlarge

S&P 500 SOARED AGAIN 

For the quarter, the S&P 500 eked out a gain of 0.6%. It was the sixth consecutive quarter of gains since the -19.6% quarterly loss in 1Q2020, when the pandemic struck. Between the March 23, 2020 bear market low and end of 3Q2021, the S&P 500 total return, which includes dividends reinvested, was more than 60%.

Click image to enlarge

A 12-MONTH WALL OF WORRY

The S&P 500 gained 30% in the 12 months ended Sept. 30, 2021. The consumer economy, which accounts for 70% of gross domestic product growth, remained very strong, even as a surge of inflation, supply-chain bottlenecks, and price-to-earnings ratios above the historical norm raised doubts and fears.

Click image to enlarge

INDUSTRY SECTORS

Since the pandemic hit, tech was No. 1 of the 11 S&P 500 industry sectors for four consecutive quarters, but for the last two quarters it was a middling performer. Such shifts in leadership are not reliably predictable, which is one reason why rebalancing your portfolio can be so important.

Click image to enlarge

INDEXES TRACKING 13 ASSET CLASSES

Of these 13 indexes tracking a diverse group of investments, No. 1 by far for the five years ended Sept. 30, 2021, was the S&P 500. That’s why U.S. stocks are the growth engine of retirement portfolios. The S&P global index excluding the U.S. returned half as much as U.S. stocks. It was a difficult period for bonds.

Click image to enlarge

EARNINGS EXPECTED TO RISE

In 2020, actual earnings of the S&P 500 companies were $139.76 per share. Expected earnings in 2021, according to Wall Street analysts’ estimates compiled by Institutional Brokers' Estimate System (IBES), are $200.64 per share and are expected to shoot up to $219.94 for 2022.

Click image to enlarge

EARNINGS DRIVE STOCK PRICES

To show how earnings drive stock prices, the S&P 500 total Return index is added in the black line. This shows the strong correlation between stock prices and corporate profits. The 2021 and 2022 earnings forecasts, in the red dots, pull the black line higher, demonstrating that earnings drive stock prices.

Past performance is never a guarantee of your future results. Indices and ETFs representing asset classes are unmanaged and not recommendations. Foreign investing involves currency and political risk and political instability. Bonds offer a fixed rate of return while stocks fluctuate. Investing in emerging markets involves greater risk than investing in more liquid markets with a longer history.