A Look at the Future Lending Forecast
By Greg Deville
Deville Realty Group
As we look out to the second half of the year, I remain strongly in the bullish camp, anticipating much
higher equity prices going into the year-end as well as 2022. Granted, some of the tailwinds (pandemic
related stimulus etc.) will slowly disappear, but overall, the consumer and corporate America are in
great shape. As you probably know, consumer spending accounts for 70% of our economy (i.e GDP
growth). Core retail sales, a direct contributor to GDP, are now 18% ABOVE pre-pandemic levels.
Consumer savings and household net worth are currently at record highs. I do not anticipate this
strength dissipating nor the resiliency of the U.S consumer wavering. The Consumer Confidence Index
has rebounded over 50 points over the last three months, the largest gain on the record.
Congress has spent about $51 billion in stimulus-related unemployment benefits so far this year, but
only anticipates an additional $16 billion in outlays for the remainder of the year as the supplemental
benefits expire in September. Although this may be a headwind to spending, it should be completely
offset by the start of the Child Tax Credits on July 15 th , which will provide a stimulative boost of about
$100 billion.
The consumer has benefited greatly from the aggregate increase in the asset prices (real estate and
equity markets), which are 25% on a year-over-year basis. This wealth effect, coupled with the $2 trillion
in excess disposal income due to the stimulus and savings, will give consumers the means and the desire
to spend as our economy fully opens. It is this strong spending capability of the U.S consumer that will
become the lynchpin of our economic recovery. Let’s now take a look at corporate earnings.
When all is said and done, stock prices are a function of corporate earnings. Most “Wall Street”
forecasters continue to model $200 in EPS for the S&P 500 for 2021. Using a P/E ratio between 20-22
yields a price range for 4000-4400 for S&P 500 index. As the economy completely reopens with a strong
consumer, an accommodative Fed, fiscal stimulus, and improving vaccination rates, we can expect to
see GDP growth (7% in 2021) as well as earnings surprises. If these points come to fruition, EPS for 2022
could easily top $220, which (using the same 20-22 P/E multiple) could take the S&P 500 index to 4400-
4800 region.
