The Economist posed the question: how high will markets go? 

While we try not to worry about what the markets will do, and focus instead on how we will respond to different scenarios, we felt called to formulate a prediction. We’ve divided the bull market into three stages since the pandemic lows.

The first phase, March to September 2020, was a policy-induced rally. With unprecedented fiscal and monetary action combined, the global stimulus tally exceeded $20 trillion. The S&P 500’s forward 12-month price-to-earnings multiple jumped from 13 at the March lows to over 23, a 76 percent rise, offsetting 2020’s 12 percent drop in earnings. The S&P 500 soared 64 percent.

The second phase, September 2020 to December 2021, was a low-conviction rally. Labor shortages and supply-chain bottlenecks were becoming more of a problem as the virus continued to spread. The surprising strength of corporate earnings, which surged by 54 percent, compensated for the multiple compression. The S&P 500 gained 50 percent.