After an unforgettable year but for the worst reasons, investors are counting on 2021 to bring not only the recovery but economic growth that allows an assessment of the market beyond the limits of common sense in normal times, this because it is in the short as in medium term, market multiples are manifestly exaggerated. The price-earnings ratio of the S&P500 is currently at 36, well above the historical average of 14.83 and corresponding to the third-highest level ever, behind almost 65 in the financial crisis and 44 reached the dot.com bubble, and in these two situations, as it is known, significant corrections occurred.
The 12-month price-earnings ratio is 24.19, which under normal conditions would certainly be a cause for concern, considering that the 5-year average is 17.4 and the 10-year average is 15.7, about 40% above medium-term values, which sets the bar for 2021 quite high, meaning that companies will have to comply with forecasts without large margins to fail, or sentiment could turn pessimistic with some ease. This means that if the vaccination strategy does not result in a normalization of economic activity, next year is unlikely to have the same music as this year.
But for the time being, optimism is king, not only due to the prospects of stopping the pandemic because of vaccines but also due to the various stimulus packages to be implemented in the main economies of the world, this not to mention the arsenal of support that central banks already have in the system. Hence, 2021 has all the conditions to be an extremely interesting year in which volatility should be predominant, both in the stock market and in the foreign exchange market, with an emphasis on EUR/USD.