It’s that time of year when Wall Street analysts started trotting out the predictions for earnings growth and stock market targets for the coming year. Unfortunately, each year these overly optimistic estimates are ground down as the year progresses. Next year will be no different as earnings growth will disappoint in 2021.

Setting The Bar High

Goldman Sachs hit the ground running this year by putting a 2021 price target on the S&P 500 of 4300 and 4600 by the end of 2022. If we use their “current level” of 3551, such would be a gain of 21.1% for 2021 and roughly 7% for 2022.

Earnings Growth Disappoint 2021, #MacroView: Earnings Growth Will Disappoint In 2021

To support that growth in stock prices, you need strong earnings growth to keep expensive valuations at some “less crazy” level. To accomplish this feat, Goldman stretched reality to $175 in EPS for 2021 and $195 in 2022. (Note that Goldman used $136 in Operating (Earnings Before Reality) for 2020, which is currently $16 per share higher than S&P is presently reporting.)

Earnings Growth Disappoint 2021, #MacroView: Earnings Growth Will Disappoint In 2021

Assuming that Goldman Sachs is correct, such would put valuations on the S&P 500 of 24.57x operating earnings in 2021 and 23.59x in 2022. Such levels remain extremely expensive by any historical measure.