Key points:
- The S&P 500 has risen ~22% over a two-year period, roughly in line with total earnings growth over that time.
- The generic expectation for S&P gains this year could be seen as roughly in line with expected mid-to-high single digit earnings growth.
- We think multiple expansion is more unlikely, but higher gains could come from a pickup in growth.
- The signs of a pickup are not yet here however. In fact, the opposite is true, as is evidenced by the value/cyclical/small-cap outperformance (versus large growth) and international market outperformance (versus the U.S.) which is already starting to wane after just one quarter.
- Growth has quickly resumed its leadership role. While this is welcome for our strategy and we see plenty of names to buy (Technology, Health Care, Payments, etc.), it is unlike prior market recoveries/breakouts in 2012–2013 and 2016–2017, where value/cyclical/small cap/international led for several quarters.
