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2021 is looking up for the economy and the markets: Morning Brief

Sam Ro
·Managing Editor
·5 min read

Monday, August 10, 2020

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Goldman Sachs analysts upgrade their 2021 forecasts

Uncertainty is high right now as the world waits for a COVID-19 vaccine and policymakers struggle to get support to those in need.

However, experts expect things to get better as you look further into the future.

In a series of research notes published in recent days, Goldman Sachs analysts laid out how they think things will look a lot better in 2021. Their forecast for the markets and the economy hinge on a critical variable: the timing of the vaccine.

“We now expect that at least one vaccine will be approved by the end of 2020 and will be widely distributed by the end of 2021Q2,” Goldman Sachs economist Joseph Briggs wrote on Sunday. “We have incorporated this timeline as our baseline forecast, and now assume consumer services spending accelerates in the first half of 2021 as consumers resume activities that would previously have exposed them to Covid-19 risk.”

Personal consumption expenditures account for around 70% of U.S. economic activity, and the availability of a vaccine is key to giving consumers the confidence to go back out there and spend. And that spending is key to getting businesses growing again, which in turn leads to more employment.

Goldman’s increased optimism about the vaccine led the firm to increase its 2021 GDP growth forecast to +6.2% (from +5.6%) and lower its 2021 year-end unemployment rate forecast to 6.5% (from 7.0%).

The economic recovery hinges on the timing of the vaccine. (Goldman Sachs)
The economic recovery hinges on the timing of the vaccine. (Goldman Sachs)

In a note published on Friday, Goldman’s chief U.S. equity strategist David Kostin wrote that he had “greater confidence” in his expectation for S&P 500 earnings to jump 31% year-over-year to $170 per share in 2021. This comes as Q2 earnings season has been beating expectations, leading analysts everywhere to raise their estimates.

“The primary driver of our above-consensus 2021 forecast is our economic growth outlook,” Kostin wrote. (Note: Kostin made this statement before his colleagues revised their growth outlook higher!)

Goldman isn’t alone in getting more optimistic about 2021 market conditions.

“During the first six months of the year, the CY 2021 bottom-up EPS estimate (which is an aggregation of the median 2021 EPS estimates for all the companies in the index) declined by 16.9% (to $163.38 from $196.70),” FactSet’s John Butters wrote on Friday. “Since June 30, the CY 2021 bottom- up EPS estimate has increased by 1.4% (to $165.68 from $163.38).”

To be clear, none of this is even close to guaranteed. And even if Goldman is correct about the timing of the vaccine, the firm’s forecasts also assume consumers continue to get aid until public health conditions are more normalized.

“Despite these forecast upgrades, the near-term downside risks have risen due to Congress’s failure to pass a Phase 4 fiscal package,” Briggs added. “We still expect a package worth at least $1.5 trillion to become law by the end of August, but the risk of no further legislative action has increased and could pose a threat to the budding recovery.”

President Trump on Saturday signed executive orders that would provide more coronavirus economic relief, but it's unclear what the measures mean since Congress has federal spending power.

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today

Economy

  • 10:00 a.m. ET: JOLTS job openings, June (5.3 million expected, 5.387 million in May)

Earnings

Pre-market

  • 6:30 a.m. ET: Duke Energy Corp (DUK) is expected to report adjusted earnings of $1.03 per share on revenue of $5.7 billion

  • 6:30 a.m. ET: SeaWorld (SEAS) is expected to report an adjusted loss of 92 cents per share on revenue of $66.58 million

  • 7:00 a.m. ET: Marriott International (MAR) is expected to report an adjusted loss of 42 cents per share on revenue of $1.63 billion

  • 8:05 a.m. ET: Royal Caribbean (RCL) is expected to report an adjusted loss of $4.88 per share on revenue of $129.18 million

Post-market

  • 4:05 p.m. ET: Novavax (NVAX) is expected to report an adjusted loss of 51 cents per share on revenue of $49.5 million

  • 4:10 p.m. ET: IAC/InteractiveCorp (IAC) is expected to report adjusted earnings of 18 cents per share on revenue of $1.23 billion

  • 4:15 p.m. ET: J2Global (JCOM) is expected to report adjusted earnings of $1.45 per share on revenue of $315.82 million

  • 4:15 p.m. ET: Occidental Petroleum (OXY) is expected to report an adjusted loss of $1.68 per share on revenue of $3.57 billion

  • After market close: ZoomInfo Technologies (ZI) is expected to report adjusted earnings of 2 cents per share on revenue of $105.5 million

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