Will Earnings Growth Prop Up a Pricey Market?

It’s a pricey market, no matter how you slice it.


S&P 500

fell slightly on Thursday, but still marked its second-highest finish ever. The benchmark U.S. stock market index has surged 64% from March lows, and during a year in which the pandemic has ravaged output, the index has climbed 13% so far in 2020.

According to Deutsche Bank, valuations are in the 99th percentile, if the late 1990s bubble period is excluded, no matter what metric you look at—from price-to-trailing-earnings to enterprise-value-to-EBITDA (which is, of course, earnings before interest, tax, depreciation and amortization).

Strategist Binky Chadha says the Deutsche Bank model finds that valuation over- and undershoots correct in slow motion—only a third of the time, over the next year.

In trying to figure out the direction the market will take, it might make more sense to focus on the economy, and what that will do to corporate earnings. Deutsche Bank ramped up its S&P 500 earnings per share view for 2021 to $194 from $173, leading to a price target of 3,950 by the end of 2021. It finished Thursday at 3,667.

If Deutsche Bank is correct in its 2020 assumptions, it’s suggesting earnings per share growth of 38% next year. A less optimistic view might arrive at a smaller earnings number. But don’t count on that multiple changing very much.

Steve Goldstein

*** Barron’s is now accepting nominations for the second annual Barron’s 100 Most Influential Women in U.S. Finance list. The deadline for submissions is Dec. 31, 2020.


Support for Compromise Stimulus Grows But Deal Still Far From Done

More Republican senators have thrown their support behind a bipartisan coronavirus stimulus plan rolled out earlier this week. Senate Majority Leader Mitch McConnell (R., Ky.) has yet to signal his support for the package, leaving a deal still effectively as far off as it has been for months.

  • At least 11 Republican senators support the compromise plan as of Thursday, including Joni Ernst (Iowa), John Cornyn (Tex.), Chuck Grassley (Iowa) and Marco Rubio (Fla.). Cornyn told the Washington Post that Democrats’ support for the bill “represents progress.”

  • McConnell has pushed for a smaller bill with stricter liability shield language and no aid to state and local governments. However, on Thursday he seemed open to a deal. “Compromise is within reach,” he said, adding, “we can do this.”

  • McConnell and House Speaker Nancy Pelosi had a call Thursday to discuss a spending bill to avert a government shutdown and a coronavirus relief package, the speaker’s office said.

What’s Next: Lawmakers will work over the weekend on the package, according to The Wall Street Journal. They expect to attach any relief aid to a full-year spending bill that Congress hopes to pass before Dec. 12, when the government’s funding runs out.

—Ben Walsh


Warner Bros. Will Stream 2021 Films on HBO Max and in Theaters

In a blow to movie chains, Warner Bros. will release its 2021 film slate on HBO Max as soon as they hit theaters.

  • The company, which is owned by


    said the 17 films expected to hit its streaming service in 2021 include “The Suicide Squad,” “Godzilla vs. Kong,” and “The Sopranos” prequel film “The Many Saints of Newark.”

  • The Covid-19 pandemic has hammered attendance at movie theaters, and led studios like


    and Warner Bros. to bring would-be blockbusters like “Mulan” and “Wonder Woman 1984” to streaming services early.

  • Movie theater firm

    AMC Entertainment Holdings

    on Thursday filed to sell 200 million shares to help stave off bankruptcy. AMC stock closed down about 16% to $3.63 on Thursday.

  • “Clearly, Warner Media intends to sacrifice a considerable portion of the profitability of its movie studio division, and that of its production partners and filmmakers, to subsidize its HBO Max start up,” AMC CEO Adam Aron said in a statement to Deadline.

What’s Next: Ann Sarnoff, chief executive officer of WarnerMedia Studios and Networks group, said most U.S. theaters likely will operate at reduced capacity throughout 2021. “No one wants films back on the big screen more than we do,” she added.

Connor Smith


Boeing Gets Its First Big 737 MAX Order Since the Plane Was Grounded


handed scandal-plagued


something that the American plane maker has sorely missed in recent months: a multibillion-dollar order. The budget Irish airline said Thursday that it would buy 75 737 MAX planes, which were approved to fly again by U.S. regulators in November, in an order worth $7 billion.

  • The 737 MAX was developed by Boeing as the fourth-generation of 737 planes, which are the workhorses of many airline fleets around the world. But after 346 people died in two crashes, the plane was grounded for nearly two years. Boeing lost hundreds of orders.

  • Currently, about 10% of Boeing’s orders for 737 MAXs this year have been canceled, as airlines cut back on spending amid plummeting travel.

  • Boeing will resume 737 MAX deliveries this month and

    United Airlines

    is expected to be the first customer to take delivery of the new MAX plane, The Wall Street Journal reported.

  • Ryanair is viewed in the aviation industry as a savvy buyer of planes that looks to add to its fleet when prices are low, an indication of why it might be pulling the trigger on this purchase now.

What’s Next: The planes will be delivered faster than usual, Ryanair CEO Michael O’Leary said, because they are part of its plans to accommodate what is expected to be a booming demand for leisure travel next year.

—Ben Walsh


Fed Appointee Narrowly Confirmed by Senate

Christopher Waller, who is the research director at the St. Louis Federal Reserve, was confirmed by the Senate to a 10-year term on the Federal Reserve’s seven-member Board of Governors. The slim 48-47 vote was largely along party lines, with no Democrats supporting the nomination.

  • Waller, a Trump nominee, received the fewest votes of any confirmed Fed governor since 1980. Opposing Waller is the clearest way for Democrats to express their anger at the Trump administration for ending several emergency lending programs run by the Fed, which Democrats see as undermining the incoming Biden administration.

  • Waller ran the University of Notre Dame’s economics department before joining the St. Louis Fed in 2009 and is seen by the Trump administration as an ally of James Bullard, who heads the St. Louis Fed and favored cutting interest rates even when the economy was strong in 2019.

  • Trump’s nomination of Judy Shelton to fill an open seat on the Fed’s Board of Governors failed to advance in November due to opposition to her radical policy views, including calling for a return to the gold standard.

What’s Next: The Fed has clearly signaled that it won’t even think of increasing rates in the coming months.

Ben Walsh


France Threatens to Veto a U.K.-EU Brexit Deal It Wouldn’t Like

European affairs minister Clement Beaune said Friday that France would not hesitate to veto a trade treaty between the European Union and the U.K. it would deem contrary to its interests, as negotiators from both sides are still hard at work with just a few days left to strike a deal.

  • “I still hope we can have a deal but we will not accept one that is bad for France. If there was a deal and if it wasn’t good, we would oppose it with our veto right,” Beaune said in a radio interview. A U.K.-EU treaty would have to be approved unanimously by the 27 remaining EU member governments.

  • French President Emmanuel Macron has been adamant that an important part of the fishing rights of French fleet in British waters should be preserved in a future deal, and is said to have raised concerns about the concessions offered to Britain by EU chief negotiator Michel Barnier.

  • In a sign however that the French are readying to approve a possible agreement, Macron’s prime minister, Jean Castex, traveled to the fishing port of Boulogne sur Mer on Thursday to tell fishermen to prepare for a “new era” and warn them that “a negotiation must lead to compromises.”

  • According to EU sources, France asked in return for concessions on fishing that the U.K. get closer to EU positions on the main bone of contention between the two sides—the rules that would govern a “level playing field” on environmental and social regulations.

What’s Next: Beaune is a close associate and former personal adviser of Macron, and his tongue didn’t slip. But warning that France would veto a deal also means that the absence of veto would then qualify it as “good”—helping the government spin it for its domestic audience in the next few weeks.

Pierre Briançon


Do you remember this week’s news? Take our quiz below and tell us how you did by emailing [email protected]

1. Which company agreed to acquire London-based IHS Markit for about $44 billion in a deal that would combine two of the largest data providers to Wall Street, and make the proposed merger the largest of the year globally, according to Dealogic?

a. FactSet Systems

b. S&P Global

c. Bloomberg

d. London Stock Exchange Group

2. November saw impressive stock gains with the

Russell 2000

finishing the month up more than 18%, its best month on record, and the S&P 500 rising 11%, its best November since 1928. The

Dow Jones Industrial Average

also surged nearly 12% in November, its largest one-month percentage gain since?

a. January 1987

b. March 2009

c. October 2001

d. May 1999

3. Which company, whose stock is up some 500% this year, recently reported quarterly sales that nearly quintupled from a year ago?

a. DocuSign

b. Shopify

c. PayPal Holdings

d. Zoom Video Communications

4. Bitcoin hit a new high this week past $19,000. Bitcoin produces no cash flows and is hardly used for transactions. It’s a software that allows people to transact, and is controlled by no single entity. Yet bulls of the cryptocurrency argue:

a. It can eventually replace gold

b. Its software caps the supply, so it can’t be debased in the same way as fiat currencies

c. Digital currencies will play a bigger role in the future

d. All of the above

5. Which bank announced a new $30 billion long-term commitment to advance racial equity by providing economic opportunity and access to banking in underserved communities, especially in the Black and Latinx communities?

a. Citigroup

b. Wells Fargo

c. JPMorgan Chase

d. Bank of America

Answers: 1(b); 2(a); 3(d); 4(d); 5(c)

Pauline Yuelys


—Newsletter edited by Anita Hamilton, Stacy Ozol, Mary Romano, Matt Bemer, Bob Rose

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