The resilience of the US economy continues to exceed our expectations. With encouraging progress toward ending the pandemic, and massive fiscal stimulus in place—and more likely coming soon, our prior economic growth forecasts may prove overly conservative. In addition, we believe a strong fourth quarter earnings season supports an increase in our earnings forecasts for 2021 and, in turn, our fair value S&P 500 target.

Economic Growth Poised To Accelerate in 2021

We are upgrading our 2021 forecasts for US gross domestic product (GDP) growth from 4–4.5% to 5–5.5% [FIGURE 1]. When we first issued our GDP

US payrolls grew month over month in January following a brief dip into negative territory in December. Peering under the hood, though, this report did little to dispel the notion that the labor market’s recovery has been stalling out, and likely bolsters calls for additional fiscal stimulus.

The US Bureau of Labor Statistics released its monthly employment report this morning, revealing that the domestic economy added 49,000 jobs in January, falling short of Bloomberg-surveyed economists’ forecasts for a 105,000 gain. Large negative revisions to December’s number, as well as January’s large seasonality ad

Negative yielding debt has been one of the most extraordinary and peculiar consequences of global monetary policy initiatives, turning the basic premise of fixed income investing upside down. Instead of one party lending another party money, and the lender receiving interest in return for the risk incurred, since 2018 the levels of outstanding debt in which the lender pays the borrower for the privilege of loaning the borrower money has skyrocketed. This has left both lenders and fixed income investors in the unfortunate situation of attempting to “lose less” rather than “earn slightly more” than the value of the loan

The US household has certainly been through a lot in the 21st century, including a housing crisis in 2008 and now a global pandemic that has triggered one of the deepest recessions ever and caused double-digit unemployment at one point—the highest in the post-WWII era.

Despite these hardships, the ability of the average US household to meet its debt payments has steadily improved. As shown in the LPL Chart of the Day, after deteriorating throughout much of the 1990s up to the 2008 recession, household debt service payments as a percent of disposable income (i.e. after tax) have improved dramatically in the most recent decad