Download our TS Lombard View "Stocks are priced for an unrealistic perfection"

by Charles Dumas, Chief Economist

US stocks are looking through this year’s earnings collapse in the expectation that 2021 is a more realistic picture of underlying economic activity. We agree, but we expect 2021 earnings will be well below consensus expectations. The COVID-19 crisis will not turn into a benign market environment next year.

And while many investors have bought risk with abandon after the Fed spread a QE-safety-net across most US assets, we see the logical end-point of Fed policy as a long-run sell signal as misallocation of capital means potential growth will decline and with it expected returns.

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