December 13, 2021

There is a common Wall Street expression that, “markets climb a wall of worry.” There has been plenty for investors to worry about in 2021 and the S&P 500 is up over +25% for the year as of market close on Friday (12/10/21). The chart below shows year-to-date growth of the S&P 500 Index along with some notable events that attributed to the “wall of worry” for investors:

Source: S&P 500 Index; data as of 12/03/21. The S&P 500 Index is unmanaged and cannot be invested
in directly. For illustrative purposes only. Past performance is no guarantee of future results. 


Stock prices follow earnings. Despite all the noise this year, what pushed the markets higher was corporate earnings. Earnings reports give company-specific news and actual results that replace all the worry and predictions about the economy. Good news provides more momentum for stock prices to move higher (and vice-versa). Many companies provided guidance during the Fall earnings season for the 4th quarter and future annual period of 2022. Earnings expectations are robust and, due to markets being forward-looking, allowed investors to “price in” the good news.

The third-quarter earnings season kicked off in October. As of December 9th, the S&P 500 Index had reported year-over-year growth in revenues of +15.8% with three quarters of S&P 500 companies that had reported surpassing revenue estimates for Q3. This “beat rate” may be lower than the record-breaking first two quarters of the year when companies were boosted by economic reopening and flattering comparisons with early 2020, but is still on track to be one of the top five quarters on record dating back to 2008. S&P 500 earnings for Q3 sit at +42.6% year-over-year, the third best growth rate in the last 10 years, only behind the prior two quarters of 2021.

The “wall of worry” is enough to raise market volatility in the short-term, but the outlook for equities remains positive. Although economic growth may be slowing from the elevated levels of earlier this year, growth in 2022 is likely to remain above pre-pandemic levels. Economic growth drives earnings and earnings drive stock prices.

We expect earnings will continue to be a primary driver of U.S. equity returns over the long-term. In the near-term, investors also have seasonality on their side as the 4th quarter is usually very kind to stocks. Since 1950, the S&P 500 Index has been up +78% of the time in the last quarter of the year. The average gain is +4%, by far the best of the four quarters.


Maryland Capital Management, LLC. 
Last updated December 2021. This material has been prepared solely for informational purposes and is not intended to provide, nor should it be relied upon for, accounting, legal, tax, or investment advice. The information provided herein has been obtained from sources we consider reliable, but we do not guarantee its accuracy or completeness. These materials are subject to change, completion, or amendment from time to time without notice, and Maryland Capital Management, LLC. (“MCM”) is not under any obligation to keep you advised of such changes. The views expressed are those of the author as of the date referenced and are subject to change at any time based on market or other conditions. Past performance is no guarantee of future results.