S&P 500 May Eye Higher Levels on Post-Election Stimulus Hopes

S&P 500 FUNDAMENTALFORECAST: BULLISH

• The S&P 500^[1] index may aim for higher levels with further stimulus hopes after the election
• Over 86% of S&P 500 companies have beaten Q3 earnings estimates, though profit fell 14% YoY
• A post-election stimulus package and further monetary easing are likely to cushion pandemic’s impact

S&P 500 Index Outlook:

The S&P 500 index climbed to a three-week high as election results appeared tilt towardsJoe Biden, who’s victory may point to a larger fiscal stimulus package and the potential to reshape US foreign policy. How the government plans to handle an increasingly alarming coronavirus wave will be a post-election focus.

US corporate earnings have fared well, underscoring resilience of the economy after lockdown measures were eased. So far in the earnings season, 84% of S&P 500 index constituents have reported results, among which around 86% have beaten analysts’ earnings per share (EPS) estimates. If 86% is the final percentage, it will mark the highest share of S&P 500 companies reporting a positive EPS surprise since 2008,according to FactSet.

On a year-on-year basis, the trailing 12-months EPS of the S&P 500 index has declined by 14%, according to data compiled by Bloomberg (chart below). This may reflect that economic activity remained well below the pre-pandemic levels, albeit not as pessimistic as what analysts had thought.

S&P 500 Index vs. Trailing EPS (2015-2020)

Source: Bloomberg, DailyFX

Another pandemic wave is sweeping most parts of the EU and the US and threatening the fragile economic recovery. More than 6.5 million coronavirus cases were reported globally in the past 14 days, marking a new high. Daily cases in the US alone broke 100,000 on 4th November, marking a new high. This further underscored the urgency for fresh monetary and fiscal aid